Insurance Journal West 2014-11-03 by Insurance Journal

WEST Distribution Online and Personalized Ebola Exclusions, New Insurance Products Elmo, Insurers and Literacy in Los Angeles

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November 3, 2014 INSURANCE JOURNAL-NATIONAL | 1

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Inside This Issue

On The Cover

Special Report:

Agency Errors & Omissions

November 3, 2014 • Vol. 92 No. 21 • West

W10

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IDEA EXCHANGE

10 Average Claims Experience Not Enough to Retain Customers: Accenture

W2 California Jury Finds Toyota Seatbelt Caused Woman’s Paraplegia

38 Tech Talk: Predictions on the Demise of the Independent Agent

12 MyPath Portal: Can It Lure Millennials to Insurance Careers?

W2 Southern California Agent That Sold Bogus Policies Sentenced

18 Ebola ‘Tipping Point’ Could Come by Late January, RMS Reports

W6 Homeowners Sue Golf Course for Negligence in California Fire

20 Workers’ Comp Writers Using More Mobile Apps, Other Technology

W6 Southern California Docs Bribed to Use Unsafe Spine Screws, Suits Claim

23 Spotlight: 10 Things to Know About Professional Liability

W8 Some Insurers Exclude Ebola; Others Offer New Products

24 Special Report: 3 Trends to Watch for in Architects & Engineers Coverage

W10 Experts: Insurance Distribution Future Online and Personalized

Special Report: Agency Errors & Omissions Plus, Exclusive Results from the 2014 Agency E&O Survey

32 E&O Insights: How Important Is Your E&O Policy? 34 Special Report: 4 Trends in Accountants Professional Liability

40 How to Determine Your Clients’ Cyber Exposures 42 Spending on Agents Always Beats Spending on Ads 44 The Competitive Advantage: Chris Burand 48 IICF’s Early Literacy Campaign with Sesame Street Workshop Inspires Industry 58 Closing Quote: It’s Time to End Physician Dispensing in Workers’ Comp

W12 Elmo, Insurers Promote Literacy in Downtown Los Angeles

DEPARTMENTS W4 People 11 Declarations 11 Figures 14 Business Moves 56 MyNewMarkets

52 Spotlight: Understanding Condo Association & Unit Valuation

6 | INSURANCE JOURNAL-WEST November 3, 2014

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Opening Note 10 Insurance Myths

en may be more gullible when it comes to insurance myths than women but even women think a number of popular myths about insurance are true, according to a survey by online insurance seller insure.com. Insure.com said it recently surveyed 2,000 adults, half women and half men, from all regions of the country, asking them whether 10 insurance-related statements were true or false. All the statements were false. Insure.com also looked at who is more likely to believe a myth — men or women. In all cases except two, men were more likely to be duped by an insurance myth. Below are the 10 insurance myths: Myth 1: I should buy insurance coverage for my house based on its real estate market value. 52% think it’s true (45% women, 55% men). Reality: Buy coverage based on a home’s cost to reconstruct (materials and labor). Myth 2: Red cars cost more to insure because they get pulled over for speeding more. 46% think it’s true (52% women, 48% men). Reality: Car color doesn’t affect insurance rates. Myth 3: If I cause a crash with extensive damages to others, my auto insurance company can cancel me immediately. 44% think it’s true (50% women, 50% men). Reality: If an insurer wants to drop a customer due to claims, it generally has to wait until the policy period is up. Myth 4: Small cars are the cheapest to insure. 40% think it’s true (42% women, 58% men). Reality: Small and mid-size SUVs and minivans are generally the cheapest to insure. Myth 5: The Affordable Care Act allows health insurance companies to base rates on medical conditions such as high blood pressure, heart disease and cancer. 36% think it’s true (42% women, 58% men). Reality: The Affordable Care Act prohibits health insurers from basing rates on pre-existing conditions. Myth 6: Comprehensive auto insurance covers everything and anything.32% think it’s true (41% women, 59% men). Reality: Comprehensive coverage covers only narrow portions of possible problems, including car theft, storm damage, animal collisions and vandalism. Myth 7: Thieves prefer to steal new cars. 29% think it’s true (42% women, 58% men). Reality: It’s more lucrative to steal old cars and sell them for parts. Myth 8: If my friend borrows my car and crashes it, their insurance will pay for damage. 25% think it’s true (48% women, 52% men). Reality: Your insurance pays when someone else drives your car. Myth 9: The Affordable Care Act requires me to take the health insurance plan offered by my employer. 19% think it’s true (41% women, 59% men). Reality: The ACA requires almost all Americans to buy health insurance but doesn’t say where they must get it. Myth 10: Out-of-state speeding tickets can’t follow you home. 13% say it’s true (34% Andrea Wells Editor-in-Chief women, 66% men). Reality: Yes, they can. 8 | INSURANCE JOURNAL-NATIONAL November 3, 2014

Publisher Mark Wells | mwells@wellsmedia.com EDITORIAL Editor-in-Chief Andrea Wells | awells@insurancejournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Chris Burand, Curtis Pearsall, Tom Wetzel Contributing Writers Seth Borenstein, Brian Cohen, Dan Gmelin, Mark Hollmer, James O’Neill, Steven Plitt, Bruce Schrenier, Mark Walls SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Vice President of Education Christopher Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

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News & Markets Average Claims Experience Not Enough to Retain Customers: Accenture

tomers surveyed said they lthough a large majority would share information (86 percent) of home and collected by smoke, carbon auto insurance customers who monoxide, humidity or have submitted a claim in the motion detectors, and more past two years are satisfied with than one-third (35 percent) how it was handled, 41 percent said they would share securiof those who have submitted a ty video camera footage. claim are still likely or very likely to switch to another insurer Speed, Transparency, in the next 12 months, accordCustomer Loyalty ing to new global research by The survey findings also Accenture. suggest that speed of settle Fourteen percent of insurance ment and process transparcustomers who have submitted ency are the most important a claim in the past two years contributors to customer are dissatisfied with the way it loyalty, with each cited by was handled, and 83 percent of ter manage risks to reduce claims frequency.” 94 percent of survey participants as a key these dissatisfied customers are planning to The research is based on a survey of nearexpectation when interacting with insurers switch or have already switched to another ly 8,000 automobile and home insurance during the claims process. Additionally, 90 insurer, according to the survey. customers in 14 countries. percent of respondents cited the ability to “While a customer who is dissatisfied contact the provider at any time to check with the way his or her claim was handled Customers Information Sharing real-time status of a claim as an important is almost certain to defect, a satisfied cus The survey also indicates that more than expectation. tomer will not necessarily remain loyal,” said three-quarters (77 percent) of insurance cus Almost two-thirds (61 percent) of insurMichael Costonis, a managing director in tomers would be willing to share personal ance customers said they would prefer to use Accenture’s Insurance Industry practice and information with their insurers in return for digital channels to check the status of their global head of Claims Services. “The survey certain benefits. While 77 percent of these claims. Half (53 percent) said they would results clearly show that delivering average respondents would share information if that not recommend their insurers to friends and claims satisfaction levels is not enough.” would enable them to receive lower insurfamily if they did not have the ability to use The research also explored speed of ance premiums, more than half (59 percent) digital channels to interact with these insursettlement and process transparency, the would do it for quicker claims settlement, ers, and more than two-fifths (44 percent) willingness of customers to share personal they would switch to information for benefits, and ‘The very act of filing a claim makes a customer said another insurer if they could customers’ use of social media in sharing information on how much more likely to switch insurers, regardless not use these channels. claims were handled. of how satisfied they are with the experience.’ Social media is another area with growing influence The survey also reveals that and 28 percent for personalized recommenon customer perceptions. Approximately customers who have submitted an insurance dations that could help them better manage one-in-three (29 percent) of respondents say claim in the past two years are almost twice risk and avoid losses. they post or plan to post on social media as likely to switch insurers in the next 12 When asked what types of information channels about their positive claims experimonths compared to those who have not they would be willing to share, more than ence, and a similar number (30 percent) say submitted a claim: 41 percent compared to half (56 percent) of the automobile insurance they post or plan to post about their negative 22 percent. customers surveyed said they would share claims experience. “The very act of filing a claim makes a cusinformation about the condition of their cars, Accenture surveyed 7,875 insurance politomer much more likely to switch insurers, 52 percent about their driving habits and 39 cyholders online in the month of May. Forty regardless of how satisfied they are with the percent about their location via global posipercent of the respondents had submitted experience,” Costonis said. “Insurers should tioning system (GPS). an auto or household insurance claim in the look at how connected devices and other As to home insurance, 78 percent of cusprevious two years. digital technologies can help customers bet10 | INSURANCE JOURNAL-NATIONAL November 3, 2014

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News & Markets California Jury Finds Toyota Seatbelt Caused Woman’s Paraplegia

California Superior Court jury has found Toyota Motor Corp. liable for causing devastating injuries to a young woman in a crash that occurred in Monterey over four-and-a-half years ago in a verdict rendered last month. After hearing evidence from both sides during a four-week trial, the jury awarded Chelsie Hill $12 million dollars in damages after only four hours of deliberations. Hill was a teenager at the time of the crash, which was caused by a teen driver under the influence of alcohol. She was riding in the rear center seat of a 1996 Toyota 4Runner — the only seat in the vehicle equipped with a lap-only belt, which Hill was wearing. Three of the four other occupants in the 30 mph, single-vehicle crash were wearing lap-shoulder belts, while the fourth passenger in the right rear seat was unrestrained. The four other occupants suffered relatively minor injuries. Hill’s spinal cord injury was caused by forces concentrated on her abdomen and lower spinal column when she jackknifed over the lap belt. The injuries rendered her paraplegic. According to Dr. Robert Lieberson, the neurosurgeon who treated the young

woman on the night of the crash, the belt virtually “decapitated” her at the midsection. She was “held together by her skin,” he told the jury. During the trial Hill’s attorney, Bob Rosenthal, presented evidence that lap-only belts were needlessly hazardous because they could cause injuries, such as Hill’s paraplegia, that would be prevented by lap-shoulder belts. Rosenthal also demonstrated that Toyota had known this at the time it designed the 1996 4Runner but chose instead to equip its rear center seat with a lap-only belt. Toyota argued that Hill’s injuries were the result of her improperly wearing the lap-only belt, and due to the severity of the crash. Physicians who treated the young woman the night of the crash testified that her injuries and scars were consistent with proper use of the belt. In arguing that Hill’s injuries were essentially her own fault, Toyota

attorney Vincent Galvin told the jury that the young woman had been “indifferent to the use of the belt… she didn’t think of it in terms of safety” on the night of the crash.” During the trial the jury was shown videos of impact tests comparing lap-only and lap-shoulder belts. Test dummies in the lap-only belt impacts jackknifed violently over the belts. Those in the lap-shoulder belts remained upright and experienced far less injurious force on their midsections and spinal columns. New cars are now required by federal safety standards to be equipped with rear center seat lap-shoulder belts. The requirement took effect starting in 2005, more than three decades after research had first demonstrated the hazards of lap-only belts in crashes. Millions of vehicles manufactured prior to 2005 with lap-only belts in the rear center seat remain registered and on the road.

Southern California Agent That Sold Bogus Policies Sentenced

ean Joseph Basler, 58, of Ventura, Calif., pleaded guilty to two felony counts of embezzlement associated with more than $250,000 in premiums that Basler received for homeowners insurance policies. According to the California Department of Insurance, Basler’s actions placed responsible families at unnecessary financial risk in an area prone to wildfires. The investigation revealed Basler, a licensed insurance agent since 1993, was collecting premiums for homeW2 | INSURANCE JOURNAL-WEST November 3, 2014

owner insurance coverage but failed to place the policies with an insurance company. Basler issued fraudulent certificates of insurance to his clients to hide his scheme, and the lack of insurance coverage left Basler’s clients vulnerable for personal financial loss, especially since many clients lived in high fire danger areas, CDI stated. According to investigators, Basler would send renewal quotes to his clients and

they would issue a check to Basler’s agency to renew their policies. One client paid Basler for more than four years until the department’s investigation revealed the homeowner had been without insurance since 2009. A review of Basler’s bank records further revealed several other clients who had been paying Basler their premiums lacked valid policies, according to CDI. Basler was prosecuted by the Santa Barbara City Attorney and sentenced to 240 days in the Santa Barbara county jail, four years of probation and ordered to pay restitution. Basler is scheduled to return to court on Dec. 5. www.insurancejournal.com

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People Dan Francis

Chris Walker

Mark Houghton

Nick Prinzing

San Francisco, Calif.-based Edgewood Partners Insurance Center Co-founder and Executive Chairman Dan Francis is leaving, the firm announced in October. In a separate personnel move EPIC has named Christopher Walker director of healthcare compliance and associate general counsel in employee benefits. Francis’ departure became effective Nov. 1. “In leaving EPIC, I’ve decided to begin a new journey outside of insurance that will afford me the opportunity to further give back and focus on some personal interests/ worthy causes that have meant a lot to me over the years,” Francis said in a message shared with his EPIC colleagues. Under Francis’ leadership EPIC grew from 63 employees in two California offices to more than 620 team members in 18 locations across the country. Walker will be based in EPIC’s San Francisco headquarters and will report to Dan Crawford, executive vice president and general counsel. Walker will become a key member of EPIC’s national employer services platform. Walker has more than 12 years in the healthcare and employee benefits field. Prior to EPIC, Walker spent nearly nine years with WellPoint - Anthem Blue Cross Blue Shield, where he was senior legal counsel. Previously, Walker was senior associate counsel at Great-West Healthcare. EPIC’s strategic partners include private equity firms The Carlyle Group and Stone Point Capital. Capital Insurance Group has named Mark Houghton as the regional field executive for the Southwest region. Houghton, the former regional manager of CIG’s Anaheim, Calif. territory, will oversee field operations and business relations for CIG’s newest regional territory comprised of Nevada, Arizona and New Mexico. Houghton has more than 20 years of experience in underwriting and marketing. He began his career in Southern California as a commercial underwriter, moving through the ranks to the position of regional underwriting manager. Houghton has held various management assignments in underwriting, information management and business development. CIG is a regional property/casualty insurer serving the Western U.S. CIG manages personal, business, and agriculture risks underwritten by its affiliate companies: California Capital Insurance Co., Eagle West Insurance Co., Nevada Capital Insurance Co. and Monterey Insurance Co. Nick Prinzing has joined Leavitt Great West Insurance Services in the Great Falls, Mont. location and will focus on employee benefits.

W4 | INSURANCE JOURNAL-WEST November 3, 2014

Prior to joining the agency, Prinzing worked as an advisor customizing comprehensive voluntary disability insurance within benefits programs for individuals, large employers and associations. Leavitt Group’s Great West offices were formed when Taylor-Leavitt Insurance Agency, Northern Montana Insurance Services, and Mountain West Benefits merged in 2014. Esurance has named Eric Brandt managing director and chief claims officer. Brandt will oversee the strategic direction and management of Esurance’s claims function. Brandt will report to Gary Tolman and be based at Esurance headquarters in San Francisco. Brandt has more than 20 years of experience in claims, most recently as chief claims officer at Fireman’s Fund Insurance Co. Prior to Fireman’s Fund, he spent several years at The Hartford financial services group and 16 years at Progressive in various claims leadership roles around the U.S. Esurance provides auto, homeowners, motorcycle and renters insurance direct to consumers. Suhr Risk Services has named Jed Dershimer vice president of employee benefits in San Jose, Calif. Dershimer previously worked at Hays Companies, ADP and Verizon, in addition to a lengthy prior stint with Suhr. He specializes in architecting and implementing employee benefit programs. Suhr is a full service risk management and insurance broker. Hub International Insurance Service Inc. has named Christopher Sindle a sales consultant in the commercial division based in Folsom, Calif. In addition to his commercial brokerage production role, Sindle will serve as a member of the commercial legal professional liability risk placement team at Hub’s Folsom office. Prior to Hub, Sindle was with the Edgewood Partners Insurance Center in Sacramento, where he served as a commercial lines broker specializing primarily in legal professional liability risk placements. Sindle pursued a career in the insurance industry after a stint in the healthcare services industry with Direct HealthCare Solutions in Sacramento. Chicago, Ill.-based Hub provides property/casualty, life and health, employee benefits, investment and risk management products and services through offices located in the United States, Canada and Brazil. www.insurancejournal.com

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News & Markets Homeowners Sue Golf Course for Negligence in California Fire group of homeowners has sued a golf course owner for negligence stemming from a wildfire that destroyed eight houses, two businesses and an apartment complex near San Diego. The lawsuit filed in October in San Diego Superior Court blames Omni La Costa Resort & Spa LLC for the May 14 wildfire and says it may have been started by equipment. The Carlsbad Fire Department has said the cause of the fire that started near the fairway of the course’s seventh hole is undetermined. It hasn’t ruled out a smoldering cigarette or cigar or a titanium golf club striking a rock or other hard surface, but Chief Mike Davis said that there was no physical evidence. Gerald Singleton, an attorney for more than a dozen homeowners who own property near the golf course, said maintenance equipment may have caused the fire. If it was a smoldering cigarette, he said, the golf course may be responsible if it failed to warn golfers about the dangerous fire conditions.

Southern California Docs Bribed to Use Unsafe Spine Screws, Suits Claim

Wyoming Offers Drive Sober App

former Southern California hospital executive is being sued by more than two dozen people who claim he ran a scheme that bribed surgeons to implant counterfeit screws in their patients’ spines, causing pain and injury. Twenty-eight fraud and negligence lawsuits were filed in mid-October in Los Angeles, joining several earlier suits. They claim that Michael Drobot, several doctors and hospitals and a Temecula machine shop took part in a scheme to make and implant cheap, unapproved and unsafe spinal fusion screws and bill insurers at inflated prices. Attorney Brian Kabateck says there may be thousands of victims. Drobot — the former owner of Pacific Hospital in Long Beach — pleaded guilty in April to paying doctor kickbacks. He’s also acknowledged bribing state Sen. Ron Calderon, who’s facing corruption charges. Copyright 2014 Associated Press. W6 | INSURANCE JOURNAL-WEST November 3, 2014

new smartphone app gives people who have had too much to drink in Wyoming another way to find a ride home. The Governor’s Council on Impaired Driving announced the launch of the Drive Sober Wyoming app last month. The app helps users phone or text a friend for a ride. The text message sends a map link with the approximate user location. The app user designates friends to contact with one tap of the icon. Taxi services are listed. It also allows anyone to report an impaired driver to the Highway Patrol. Drive Sober Wyoming can be downloaded from your smartphone or by scanning the QR code found the Web and on posters and drink coasters coming soon to Wyoming locations with a state liquor license. Copyright 2014 Associated Press. www.insurancejournal.com

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News & Markets Some Insurers Exclude Ebola; Others Offer New Products By Carolyn Cohn, Richa Naidu and Avik Das

s fear of Ebola infections spreads to developed economies, U.S. and British insurance companies have begun writing Ebola exclusions into standard policies to cover hospitals, event organizers and other businesses vulnerable to local disruptions. As a result, new policies and renewals will become costlier for companies opting to insure business travel to West Africa or to cover the risk of losses from quarantine shutdowns at home, industry officials told Reuters. “What underwriters are doing at the moment is they’re generally providing quotes either excluding or including Ebola — and it’s much more expensive if Ebola is included,” said Gary Flynn, an event cancellation broker at Jardine Lloyd Thompson Group Plc in London.

unit, which offers coverage for U.S.-based companies whose employees travel or that have operations abroad, was using a policy endorsement to exclude Ebola on a “caseby-case basis” during the underwriting process on new policies and renewals. It said it was taking into account the risk posed by Ebola to clients who travel to and have operations in African countries with “potentially higher risk exposure.” Others are ‘What underwriters are doing at the moment introducing new is they’re generally providing quotes either products tailored excluding or including Ebola — and it’s much for Ebola. “Probably the more expensive if Ebola is included.’ biggest issue coming up is business interruption,” said Tony While Ebola has killed more than 4,500 DeFelice, managing director of Aon Risk people in West Africa, and other diseases Solutions’ national casualty practice in the such as influenza are arguably more likely United States. to cause measurable harm in the West, A business interruption could be anythe arrival of a few isolated Ebola cases in thing from the loss of key employees to Western countries has focused their insursickness to the quarantine of an airliner ers’ minds on the virus’s potential to cause or cruise ship used by a suspected patient damage. suffering from Ebola or any other serious The impact on liability insurance has infectious disease. been limited. In the United States, work But many property and business interers’ compensation covers medical care and ruption policies are triggered only by direct lost income for those who fall ill at work. physical damage to property, insurance Because such policies are regulated at state broker Marsh wrote in October in a note on level, Ebola exclusions are unlikely. Ebola. Some property/casualty insurers, howev “This means that without special proer, are considering Ebola before writing or visions — for example, manuscripted renewing policies. wording to broaden coverage — healthcare ACE Ltd said that its global casualty W8 | INSURANCE JOURNAL-WEST November 3, 2014

providers’ property insurance and BI policies would likely not be triggered based solely on the presence of Ebola,” Marsh said. Miller Insurance Services LLP and William Gallagher Associates recently launched the first product to insure hospitals against losses from any shutdown made necessary by Ebola quarantine, teaming up with Lloyd’s of London underwriter Ark Syndicate. More could follow. Aon Plc has created an “Ebola task force” to monitor the outbreak and help clients prepare for potential risks. JLT’s Flynn said the cost of insuring an event against Ebola would be about triple the amount of normal cancellation insurance, if the venue was in a region not known to be affected by the virus. He said organizers would pay about 0.1 percent of potential revenue from an event for insurance excluding Ebola coverage. Including Ebola, the cost rises to about 0.3 percent. No events have yet been canceled in Britain or the United States as a result of Ebola; only three cases have been diagnosed in the United States to date, and none in Britain. But concern has been growing, and Ebola has moved to the forefront of the U.S. election campaign. The U.S. government said that travelers arriving from any of the three centers of the outbreak, Liberia, Sierra Leone or Guinea, must fly into one of five airports that have enhanced screening in place. Britain is also screening arriving air and rail travelers. (Additional reporting by Sonali Paul in Melbourne, Tanya Agrawal, Amrutha Gayathri and Neha Dimri in Bangalore; Writing by Robin Paxton; Editing by Kevin Liffey) Copyright 2014 Reuters. www.insurancejournal.com

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News & Markets Experts: Insurance Distribution Future Online and Personalized California branch manager for Chubb Group of Insurance Cos., emphasized the continued importance of agents and brokers. “We are 100 percent dedicated to the independent broker and agent,” Darling said. Darling noted that there’s a lot of business to go around in the

By Don Jergler

he future of insurance distribution was recently discussed at the CPCU Society’s annual All Industry Day in California. The day-long conference at the Sportsmen’s Lodge in Studio City last month included panels on the economy, business interruption and cyber liability. During a panel titled “The Future of Insurance Distribution: Severe Disruption or More of the Same?” moderated by David T. Russell, director of the Center for Risk and Insurance at California State University, Northridge, several experts offered their thoughts on the changing face of the independent agency system and how insurance will be distributed. “The future of brokers I think will require much more transparency,” said Alexandra S. Glickman, area vice-chairman and managing director for Arthur J. Gallagher. Glickman said that to compete with a the growing internet presence of direct writers agents and brokers will need to offer personalized expertise and do so in a way that reassures consumers they are being dealt with honestly. Jim Darling, senior vice president and W10 | INSURANCE JOURNAL-WEST November 3, 2014

net and social media represents the future of how insurance will be sold to individuals and companies. Casey Preston, co-founder and chief operating officer of Stratosphere Marketing Solutions, drove home that point. He noted that the modern consumer has become tech savvy, device heavy and desires instant gratification. The latter point is one he likes to make to his some 500 agency clients in trying to dissuade them from practices like putting long quote forms on their websites. He also likes to push the mobile trend with his clients. Preston cited studies showing the average smartphone user looks at his or her device 150 times per day, which means producers Golden State. should consider embracing technology There are 42,000 technology companies like push notifications, which are sent to in California, and 13,000 ultra high net phones to alert users to breaking informaworth individuals, he said. tion. He added that all of the business for Preston, a former consultant for myspace. Chubb comes from agents and brokers and com, offered up some compelling statistics that the sort of business Chubb does will to make his argument: likely continue to require local experts who More than 75 percent of internet users can speak directly to customers. use social media; 71 percent of consumers With continued consolidation and comconduct research on the internet before panies looking for ways to reduce expenses purchasing insurance; more that 40 million he posed a insurance quotes were given question to ‘The exclusive agent is our online in 2013; and a J.D. make his point: bread and butter and it’s Power study shows 62 per“Will the high cent of consumers are likely going to continue to be our to engage with an agency net worth customers deal distribution system.’ that leverages online technolwith somebody ogies. in Kansas or Chicago or will they go down He also advises his clients to improve the street and find someone to take care of their websites, to create mobile versions of their risks?” their sites, to brand firms well online and John Lindemann, director of home office to make sure the firm’s name shows up on a agencies for Farmers Insurance, said the web search. value the exclusive agent brings to the giant Many of his clients’ firms did not pop carrier will continue on into the future. up right away when searching their names “The exclusive agent is our bread and online, which Preston himself uses as a butter and it’s going to continue to be our selling tool to convince managers that his distribution system,” he said. services are needed, he said. Despite the talk of the continued impor “You’d be surprised how many companies tance of traditional insurance distribution I’ve signed up just by googling their name,” models, the panelists agreed that the interPreston said. www.insurancejournal.com

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News & Markets Elmo, Insurers Promote Literacy in Downtown Los Angeles By Don Jergler

of insurance companies were on hand to “I think it supports the community,” she help families get seated at tables to color, said of literacy. to go and meet Elmo or to find their way Jim Darling, senior vice president and ore than 100 tykes, some crawling through the library for story time. California branch manager for Chubb, was their way out of strollers, were Bryant Baloloy, a public directors and managing a long line of excited children noticeably tickled as they scrambled about officers underwriter for carrier CNA, said and parents circling a room in the library the Central Library in downtown Los he was taking part in the event because he where Elmo waited to greet people and Angeles, making their way to Sesame Streetbelieves literacy in childhood leads to a bethave pictures taken. themed coloring books or lining up to see a ter adults. Darling’s motivation for participating in big, red furry Elmo character. “Statistics show that early literacy prothe event, and the particular task he was “Every Day is Reading and Writing duces efficient performing when he was asked to offer Day,” a partneradults who can a few thoughts on his involvement, was ship with the ‘The key point is just for children contribute to not immediately clear. Insurance Industry to learn to read and for parents only society as “I love Elmo,” Darling said. Charitable to talk to their children.’ a whole but the Darling, who noted he has three chilFoundation and insurance indusdren, said community outreach is importSesame Street try as well,” Baloly said. ant for companies in all industries. Workshop, the nonprofit organization Karen Axel, the human resources direc “I think it’s a very good way to reach out behind Sesame Street, was held at the tor for Chubb Group of Insurance Cos.’ to children,” he said. “This is a way to give library in mid-October to motivate area Southern California operations, agreed. back to the community.” parents and their children to talk, read and write together. The event featured the popular Elmo character. It’s a successful sequel to last year’s literacy event featuring the Cookie Monster. The literacy initiative from IICF and Sesame Street is in response to the wide gap in literacy rates that prevails between children of high and low-income families, according to the groups. IICF CEO Bill Ross talked about the importance of learning. “The key point is just for children to learn to read and for parents to talk to their children,” Ross said. He said insurance is an idea industry to be involved in efforts to promote greater literacy nationwide because of its broad reach. “Insurance has a great network that covers the U.S.,” Ross said. Elmo made an appearance in downtown Los Angeles to help IICF and Sesame Street promote literacy. Photos by Danielle Klebanow Volunteers from a variety

W12 | INSURANCE JOURNAL-WEST November 3, 2014

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FIGURES

$350 Million Amount in bonds sold by the California Earthquake Authority to strengthen its ability to pay claims. The debt, which is federally taxable, is the first offering by the authority since 2006.

DECLARATIONS

$175 Million The amount a jury said Texas-based Trinity Industries Inc. should pay in a whistleblower case involving defective guardrails on the nation’s highways. The guardrails are supposed to collapse and cushion the impact when hit head-on, but critics say they often impale cars. Trinity faces separate lawsuits blaming the guardrails for injuries and deaths in several crashes.

146

Wild Bus Ride

“She can’t stay in the lanes, she’s crossing the double lines, and the adults are getting scared.”

— A woman on a Utah school bus called 911 when the driver allegedly began driving erratically. The driver was arrested in mid-October on suspicion of DUI.

Freedom of Speech

“The First Amendment gives people the right to flash their headlights to send a message.”

— Richard Morse, legal director of the ACLU of Delaware, says Smyrna, Del., police have routinely violated individuals’ free speech rights, including ticketing a driver who flashed his headlights to warn fellow motorists of a speed trap.

The number of crashes in Delaware last year that were attributed to distracted driving. Those crashes resulted in 54 injuries and three fatalities, according to police in Dover, Del.

Road Home

“We hope that Sen. Vitter, Sen. Landrieu and the rest of the delegation will work with these federal partners on a solution, so that we can close out the Road Home program in way that makes sense for our citizens nearly 10 years after hurricanes Katrina and Rita.”

550

$20,000 The amount in restitution a former Kansas insurance adjuster was ordered to pay to Farm Bureau Insurance for insurance fraud involving wrecked vehicles. The Ford County District Court found Eric Alan Hansen guilty of reporting vehicles as totaled and retained by the owners when they were actually sold by Hansen to a local body shop. He was sentenced to two years of probation.

The number of West Virginia coal miners that have temporarily lost their mining certifications because they failed a drug test in the past two years, according to a report to the state legislature. Prescription drugs are the main problem; marijuana is second. A mine safety law that took effect in January 2013 requires coal mine operators and certain employers to screen for substance abuse.

— Louisiana Office of Community Development Director Pat Forbes. The U.S. Department of Housing and Urban Development is seeking the return of $522.2 million in home elevation grants to the Louisiana Road Home program, but has no plans to make homeowners who failed to elevate their homes pay back the grants.

Farm Machinery v. Poles

“We’ve got about 20 contacts from farm equipment into our power lines since January first of this year.”

— Terry Ebright, a safety coordinator at Sioux Valley Energy. Increasingly large farm machinery is causing more costly and potentially dangerous collisions with power lines and poles, rural Minnesota electric co-ops say.

Walking and Talking

“It’s walking like government, it’s talking like government, it’s flapping its authority like government, and so it ought to take on some of the responsibilities and transparency of government.”

— Florida Senate President Don Gaetz says private corporations formed by Florida public universities are getting around public records law by overseeing everything from athletic programs and salaries.

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November 3, 2014 INSURANCE JOURNAL-NATIONAL | 11

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News & Markets MyPath Portal: Can It Lure Millennials to Insurance Careers? By Mark Hollmer

ith the insurance industry employee base rapidly aging and retiring, a number of companies and organizations in the field have come up with something that they hope will draw more young adults into the sector. Their solution: MyPath, an online platform designed to help students and other young adults explore their career options within insurance and risk management. The Institutes, a Pennsylvania-based risk management and property/casualty insurance education organization, is funding its initial rollout. The Institutes operates with a number of affiliates including The CPCU Society, The Insurance Research Council and CEU.com, and its board of trustees includes a number of U.S. property/casualty insurance executives. Its initial partners in the MyPath project include Liberty Mutual, State Farm, Munich Re, LIMRA, USAA, Chubb and Gen Re, among many other insurance companies and independent agencies, a spokesperson told Carrier Management via email. Other educational organizations including InVest and Career Connections also are taking part in the effort. In announcing the launch during a media conference call, The Institutes President and CEO Peter Miller explained that the industry has become increasingly concerned about attracting younger professionals, particularly folks from the Millennial generation (ages 18 to 24). According to statistics supplied with the MyPath rollout, almost half of insurance industry professionals are over age 45, with 25 percent of the industry expected to retire by 2018. What’s more, there will be 400,000 open positions by 2020. 12 | INSURANCE JOURNAL-NATIONAL November 3, 2014

“A large number of [insurance indusand it only needs to show interested parties try] people are likely to retire in the next how to access those opportunities. 10 years. Estimates vary, but it is in the “The good thing for the insurance indusseveral hundreds of thousands of people,” try is those characteristics that Millennials Miller said during the conference call. want in a career map well in our industry,” “Millennials, who will be the future of this Miller said. “We think that there is a great industry, really story to tell, and don’t know an industry-wide ‘We think that there is a great much about story to tell, and an industrywide effort is necessary insurance, and to do that. That effort is necessary to do that. that is really the is what MyPath is problem we are That is what MyPath is about.’ about.” trying to solve, The fall so they will consider insurance as a career launch of MyPath is considered a pilot projoption.” ect “because we know it takes a long time The MyPath web portal (www. to establish a brand,” Miller said. “As we insuremypath.org) is intended to be a solufind out more about what Millennials want tion to get the word out about insurance and how it matches to the industry, we will and risk management and the options that continue to add different assets to the site.” people can pursue to find the jobs that they MyPath’s organizers also plan to coordiwant in the broader field, Miller said. nate with the thousands of insurance and “When you ask about insurance, what risk management organizations, initially in property/casualty, but eventually in the life and health insurance spaces as well. Miller added that MyPath is taking an “aggregation approach” linking uses to career information, including internships, classes or other opportunities, provided by other organizations. “We’re not trying to replace or do something that niches have done but to direct people to those niche efforts,” Miller explained. Organizers said the initial advertising push for MyPath’s rollout will include print and online you find out is [Millennials] don’t know efforts. Plans call for launching a national anything, or what they think they know is advertising campaign in the coming month incomplete or inaccurate,” Miller said. But, specifically geared toward Millennials, tarhe added, young adults want a job that has geting Pandora and other online radio chanstability, flexibility, upward mobility and nels, paid search, rich media, Facebook and the ability to make a difference. He asserted other social media advertising, and mobile that the insurance industry has all of that, devices, according to The Institutes. www.insurancejournal.com

Needle found. Haystack avoided.

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Business Moves

Marsh, Torrent Insurance broker Marsh has agreed to acquire Torrent Technologies Inc., which serves write-your-own insurers participating in the National Flood Insurance Program (NFIP). Torrent’s approximately 100 employees will combine with Marsh’s existing flood insurance specialists and remain headquartered in Kalispell, Mont., to create a Flood Center of Excellence, offering a suite of flood insurance products and services. The transaction is subject to customary closing conditions. Terms were not disclosed. The 10-year-old tech company’s products include TorrentFlood, which is cloud software for processing of flood policies by carriers and agencies, and GetFlood, a web tool that gives agents and consumers realtime price estimates and online payment options for flood policies. It also offers FloodAssure, which helps lenders manage their flood compliance risk. The two firms have an existing relationship. In 2013, Marsh began using Torrent’s platform to access the NFIP. Global Indemnity, American Reliable, Assurant Specialty Assurant Specialty Property, a business segment of Assurant Inc., has agreed to sell 14 | INSURANCE JOURNAL-NATIONAL November 3, 2014

its general agency business and associated insurance carrier, American Reliable Insurance Co., to Global Indemnity Group Inc., the U.S. subsidiary of Dublin, Ireland-based Global Indemnity, for approximately $114 million in cash. Global Indemnity will also assume approximately $280 million in customary insurance related liabilities, obligations and mandates. American Reliable, which is based in Scottsdale, Ariz., and has an office in Omaha, Neb., writes specialty personal lines and agricultural property/casualty insurance through a network of general and independent agents. Its product lines include manufactured housing, watercraft, recreational vehicles, farm and ranch, and federal flood insurance. American Reliable recorded $250 million of net earned premiums in 2013. Global Indemnity plc provides both admitted and non-admitted specialty property/casualty insurance coverages in the United States, as well as reinsurance worldwide. The holding company was formed in 2010 under the laws of Ireland. Its U.S. operations are composed of six insurance companies: Penn-America Group, Diamond State Group, United National Group, J.H. Ferguson & Associates/VacantExpress. com and Collectibles Insurance Services. Its non-U.S. operation is Global Indemnity Reinsurance Co. Ltd. Assurant Specialty Property sells insurance services in partnership with mortgage lenders, property managers, financial institutions, manufactured home sellers, auto finance companies and their customers. Services include insurance tracking and management and lender-placed homeowners insurance, property preservation services, and property and personal coverage such as renters and flood insurance. With roughly 17,500 employees, Assurant has approximately $30 billion in assets and $9 billion in annual revenue. The transaction is expected to close following regulatory approval and satisfaction of customary closing conditions.

Heffernan, Pilot Employee Benefits Heffernan Insurance Brokers has purchased the assets of Pilot Employee Benefits of Melville, N.Y. Family owned and operated for more than 50 years, Pilot Employee Benefits has developed benefits programs and services for a wide variety of companies and thousands of employees. Pilot Employee Benefits will be joining forces with Heffernan’s New York City office, integrating employee benefits services alongside Heffernan’s property/casualty insurance efforts. The Pilot Employee Benefits’ leadership personnel, consisting of Managing Senior Vice President Joshua Senders and Managing Senior Vice President Benjamin Senders, will oversee Heffernan’s newest office, located in Long Island, N.Y. Headquartered in Walnut Creek, Calif., Heffernan Insurance Brokers has offices in San Francisco, Petaluma, Menlo Park, Los Angeles and Orange County, Calif.; Portland, Ore.; St. Louis, Mo.; and New York City. Lawley Insurance, S. Turtletaub & Sons Lawley Insurance, an independent agency based in Buffalo, N.Y., has acquired S. Turtletaub & Sons Inc., an agency in Bayonne, N.J. Terms of the transaction were not disclosed. The transaction is part of Lawley Insurance’s overall New York City and downstate growth plan, according to the announcement. S. Turtletaub & Sons Inc. staff will join Lawley Insurance’s branch office in Florham Park, N.J. Lawley Insurance is a privately held, third-generation agency. The Buffalo, N.Y.based firm has more than 370 staff members and has branch offices across New York state in Amherst, Batavia, Elmsford, Fredonia, Melville and Rochester, along with an office in Florham Park, N.J. Risk Strategies, Benefit Development Group Risk Strategies Co., a national insurcontinued on page 16 www.insurancejournal.com

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Business Moves continued from page 14 ance brokerage and risk management firm based in Boston, has acquired Benefit Development Group, a Worcester, Mass.based broker for health insurance, group, and voluntary benefits in the Northeast United States. Founded in 1976, Benefit Development Group offers health insurance, group and voluntary benefits services for clients in various industries, including retail and distribution, utilities, higher education, not-for-profits, consulting, and healthcare/ clinical professions. Benefit Development Group’s President and Founder Mike Tsotsis and Senior Vice President Christopher Powers will continue to manage the firm, and will do business as “Benefit Development Group, a Risk Strategies Company,” according to the announcement. Confie Seguros, AA Insurance, Carallo Confie Seguros, a Huntington Beach, Calif.-based national provider of personal lines insurance, has acquired AA Insurance Services and Parietti & McGuire Insurance in New York. AA Insurance Services, founded in 1995 and based in Lockport, N.Y., is a standard personal lines agency specializing in auto and homeowners insurance. Parietti & McGuire Insurance is a second-generation family-owned business founded in 1964 and based in Monroe, N.Y. Parietti & McGuire specializes in providing auto, home and small commercial insurance. In a separate deal, Confie Seguros acquired the assets of Carallo Insurance Group Inc., an auto insurance agency in Garland, Texas. Confie has acquired and integrated more than 70 businesses since its inception in 2008, and has more than 560 offices nationwide. Confie Seguros is a portfolio company of Boston-based private equity firm ABRY Partners. First Commonwealth, Thompson/McLay First Commonwealth Insurance Agency, 16 | INSURANCE JOURNAL-NATIONAL November 3, 2014

an Indiana, Pa.-based insurance agency and a subsidiary of First Commonwealth Financial Corp., acquired Thompson/McLay Insurance Associates, an agency also based in Indiana, Pa. Terms of the transaction were not disclosed. Thompson/McLay has been in business for 29 years and serves thousands of regional clients through home, auto, commercial and specialty insurance lines. Following the acquisition, Thompson/McLay will retain its name and operate as a division of First Commonwealth Insurance Agency. With the acquisition of Thompson/McLay, First Commonwealth Insurance Agency said it will focus on delivering in three primary service categories: employee benefits consulting; personal and commercial property/ casualty offerings; and client consultation pertaining to the Affordable Care Act for individuals and small businesses. The Horton Group, Boyle, Flagg and Seaman Insurance Orland Park, Ill.-based insurance brokerage, The Horton Group, announced the acquisition of certain assets of Boyle, Flagg and Seaman Insurance Inc., located in Illinois and Michigan. An insurance agency with locations in Illinois and Michigan, Boyle, Flagg, & Seaman has served its local communities for more than 90 years. BF&S’s Illinois retail operations will now operate under the Horton name and staff will relocate to The Horton Group offices in Orland Park. The locations in Sturgis and Three Rivers, Mich., will continue to operate at their current locations as W.E. English Insurance Agency Inc. Going forward, BF&S will be exclusively focusing on the wholesale side of its business, as it continues to be the exclusive marketing agent for the Illinois Public Risk Fund. The Horton Group has nearly 300 employees in Illinois, Indiana, Wisconsin, Tennessee and Michigan. AssuredPartners, Crawford Advisors AssuredPartners Inc., through its subsid-

iary AssuredPartners of Maryland, LLC, has acquired Crawford Advisors LLC, in Hunt Valley, Md. Terms of the transaction were not disclosed. Crawford Advisors specializes in employee benefits and compliance services for mid-market and large companies. It reports approximately $12 million in revenue. AssuredPartners said Crawford Advisors offers a range of health, life, disability and voluntary benefit programs that will strengthen AssuredPartners’ employee benefits capabilities nationally. As part of the acquisition, 60 Crawford Advisors employees will join AssuredPartners. Local operations will continue under the leadership of Reagan Crawford, AssuredPartners said. Headquartered in Lake Mary, Fla., AssuredPartners acquires and invests in insurance brokerage businesses (property/ casualty, employee benefits, surety, MGA/ wholesalers) across the United States and in London. Since its founding in 2011, AssuredPartners has acquired 69 insurance firms and has grown to $380 million in annualized revenue, with more than 80 offices in 27 states and a London office. AssuredPartners is a portfolio company of Chicago-based private equity firm GTCR. USI Insurance Services, Wallace/Scott Valhalla, N.Y.-based USI Insurance Services announced the closing on the acquisition of Wallace Insurance Inc./ Scott Insurance Services headquartered in Anchorage, Alaska. The employee benefits practice and all of its employees will join USI’s Anchorage office. By acquiring Wallace/Scott, USI’s footprint in the Northwest has been further extended. Terms of the deal were not disclosed. Wallace/Scott delivers to its clients an array of employee benefit products and services, including expertise in wellness, insured/self-funded plans, group life and disability plans, along with executive business travel accident programs. USI operates out of more than 140 offices across the United States www.insurancejournal.com

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News & Markets Ebola ‘Tipping Point’ Could Come By Late January, Reports RMS

and deaths from the Ebola virus in Sierra he Ebola virus disease outbreak in Leone, Guinea and Liberia, which were West Africa has the potential to be the combined with a probabilistic assessment most deadly infectious disease event since of various international medical and milthe 1918 flu pandemic, according to a new itary response scenarios to estimate the report by catastrophic risk modeling firm timing of the tipping point where cases are RMS. controlled such that the RMS said the current outbreak will disease tapers off. continue to worsen while the deployment of resources is ramped up to meet the caseTipping Point load. According to RMS modeling, until a If effective tipping point is reached where the number resources are of new daily cases declines rather than deployed at a rate increases, the severity of the outbreak will that outstrips the continue to multiply, with the total number pace of increase in of new cases approximately doubling each new cases, a tipping month. point can be reached where RMS said it does not expect this outthe number of new daily cases reachbreak of Ebola to become a significant mores a maximum, allowing response tality threat outside of West Africa. measures to kick in and prevent new “Controlling the spread of this Ebola outinfections at a rate that causes the epibreak is more a question of logistics than demic to subside. virology,” said Dominic Smith, pandemic “The way to stop this outbreak is simple risk expert and senior manager of Life in principle and has been demonstrated in Risks at RMS. “The fight against the Ebola Nigeria and in specific cities in the affectepidemic is a race against a moving target; ed region: reduce contacts with infected more resources are required as the number people by more than half,” Smith said. “The of cases increases.” scale and pace of the international response RMS modeling suggests that, based on will define how long it takes to reach the current response efforts, the tipping point tipping point.” will be reached in The fight against the The U.S. Centers January 2015. Modeling further Ebola epidemic is a race for Disease Control and reveals a 55 percent against a moving target. Prevention (CDC) estimates that, even in the absence chance that by the of treatments and vaccines, the epidemic end of November, at least 1,000 new cases would be brought under control and evenof Ebola will develop daily, and as many as tually come to an end if approximately 70 1,400 per day in a worst-case scenario. There to 75 percent of cases are in medical care or have been more than 9,000 cases reported in treatment units, or in environments where total to date. there is a reduced risk of disease transmis Adding to the devastation of the Ebola sion. outbreak, overwhelmed medical systems in In a realistic scenario based on current West Africa have fewer resources to respond response efforts, RMS analysis projects the to other diseases, and the mortality rate tipping point will be reached at the end of of malaria and yellow fever is on the rise, January 2015, with the outbreak subsiding according to the report. Also, malaria by June 2015. deaths are likely to continue rising as the seasonal height of malaria transmission is Modeling the Ebola Outbreak reached next month. When modeling a disease, RMS said it RMS modeled the future paths of cases 18 | INSURANCE JOURNAL-NATIONAL November 3, 2014

first looks at the reported virulence and the transmissibility of the pathogen responsible for causing Ebola. This virus is extremely deadly, with an estimated case fatality rate of 69 percent to 73 percent. RMS said this range of estimates for transmissibility is between 1.5 and 2.2, which means on average, an infected individual will transmit the virus to approximately two other people in a susceptible population. RMS then takes into account mitigating criteria, including medical and non-medical interventions. In its modeling, RMS evaluated the current response resources in place in impacted countries, further resources already pledged and a range of estimates of potential additional resources that will be deployed. For each country, RMS used these factors to formulate five scenarios, ranging from very optimistic to very pessimistic, and their associated probabilities. According to the report, the number of beds for Ebola treatment currently in use is far below what is needed to reverse the outbreak in any of the three effected countries. To reach the tipping point sooner, faster ramp up of mitigating efforts is essential, but subsequently, fewer total beds and resources in general will be required. For example, to reach the tipping point in Sierra Leone, the current number of beds in use needs to be approximately tripled by the end of November. If that fails, the number will need to increase to six times today’s number by the end of December to halt the outbreak. A large degree of reliance will be placed on beds being rolled out in Ebola treatment centers (ETCs), which cost $5.7 million continued on page 20 www.insurancejournal.com

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Chubb Group of Insurance Companies (“Chubb”) is the marketing name used to refer to the insurance subsidiaries of The Chubb Corporation. For a list of these subsidiaries, please visit our website at www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615. ©2012 Chubb & Son, a division of Federal Insurance Company.

NATIONAL COVERAGE

News & Markets Workers’ Comp Writers Using More Mobile Device Apps, Other Technology

orkers’ compensation insurers are increasingly turning to mobile device applications and other technology innovations in their bid to remain a force in the industry and serve their clients, Novarica determined in a new report. Their hope, Novarica said, is that these high-tech bells and whistles will help them reduce losses and boost returns in what remains a highly competitive sector. “A significant use of specialized components is to improve the productivity of loss control representatives and consultants, both via mobile device and collaborations via software solutions,” Novarica concluded in its report, dubbed “Business and Technology Trends: Workers’ Compensation.” “Emerging technologies are allowing advanced insurers to encourage client behavior that will reduce and prevent loss,” Novarica said. At the same time, Novarica said, workers compensation insurers are still relying on some familiar technological tools. “Agent portals continue to be important continued from page 18 to set up and run a 50-bed center for one month. Ebola community care units (ECUs) staffed by rapidly trained non-experts rather than medical workers are being set up in some areas, but there is larger uncertainty surrounding their effectiveness. Treatments might help reduce the case fatality rate, but are very unlikely to have a significant role in halting the spread of the Ebola epidemic. An Ebola vaccine might be available in time to shorten the epidemic, but will not be produced in sufficient quantities to have an active role in halting the spread of the epidemic in the next few months. Outside West Africa RMS said it does not expect this outbreak of Ebola to become a significant mor20 | INSURANCE JOURNAL-NATIONAL November 3, 2014

for guiding producers as to carriers’ risk appetite and for ease of doing business generally,” Novarica said. “Replacing core systems to support new product development and improve the consistency and quality of underwriting decisions is also common. Insurers are investing in claims administration systems to improve operational effectiveness and the quality of the claims service, which is a key interaction with a policyholder.” Beyond those elements, however, new technology and approaches are invading daily workers’ compensation underwriting routines. How is this happening? Here are some of Novarica’s major findings:

•Mobile devices are getting bigger in the workers’ compensation space. Novarica said that most mobile apps in this area are focused on loss control, and third-party administrators are using apps that handle injury reporting and other claims self-service functions. •As insurers increasingly use third-party and multidimensional data in their workers’ compensation analysis, they’re spending more on proactive analytics to figure out which claims will produce long-term payouts. •Agent portals, business intelligence and core claims/policy administration systems place at the top of workers’ compensation technology initiatives. •Insurers are also focusing on improving their technology for billing, customer portals, distribution management, document creation and management, rating, underwriting workstations and specialized elements. •Pay-as-you-go policies, where businesses pay a premium every payroll period versus an annual premium, are becoming more commonplace, helping to simplify how coverage is sold and handled.

tality threat in other parts of the world. It is possible that it could spread to neighboring countries in West Africa. This risk can be reduced by appropriate screening of people leaving the impacted region and could be contained with rapid implementation of effective control measures. In the situation where there are potentially 10,000 new cases per week in West Africa, there will be more cases exported into other countries. This is possible via two routes: Foreign workers combating the spread of the virus are likely to be repatriated to their home countries. Currently the United States, United Kingdom, France and Cuba have delivered personnel in significant numbers. RMS does not consider this to be a probable source of escalation as such cases

will be monitored and isolated by the public health systems already in place in those countries. Infected people traveling to other regions unchecked could transmit Ebola outside of West Africa. However, the capability of most countries to trace contacts is higher than in Liberia and Sierra Leone, and stronger travel control measures could be implemented if case numbers exceed a prudent limit. RMS said it will be updating the model with new numbers every few weeks, projecting the course of the event in near realtime. California-based RMS models and software help financial institutions and public agencies evaluate and manage catastrophe risks throughout the world. www.insurancejournal.com

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SPOTLIGHT

10 Things to Know About Professional Liability There were 1.3 million active licensed lawyers in the United States in 2013. — American Bar Association

In 2012, the probability of a plaintiff receiving a favorable verdict in a jury trial involving an employment practices liability claim was 50 percent. — “Employment Practice Liability: Jury Award Trends and Statistics,” 2013 edition, published by Thomson Reuters

A survey of more than 1,400 organizations’ total professional liability costs rose in 2013 to $1.25 per $1,000 of revenue from $1.17 in 2012. There was an even greater jump in cost from 2011, which saw costs at $0.92 per $1,000 of revenue. — 2014 RIMS Benchmark Survey

A surgeon in the United States leaves a foreign object inside a patient’s body after an operation 39 times per week, performs the wrong procedure on a patient 20 times per week and operates on the wrong body site 20 times per week. — 2012 Johns Hopkins study published in the journal Surgery

New York (166,317) and California (163,163) had the most lawyers of all U.S. states as of 2013. — American Bar Association During 2012, the median jury verdict in a trial involving an employment practices liability claim was $70,000; the mean verdict was $513,771. — “Employment Practice Liability: Jury Award Trends and Statistics,” 2013 edition, published by Thomson Reuters

The range of all verdicts in such cases was from a low of $53 to a high of $42.7 million. — “Employment Practice Liability: Jury Award Trends and Statistics,” 2013 edition, published by Thomson Reuters

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The long-time $250,000 cap on noneconomic damages for medical malpractice in California reduced average payments by 20 percent. — Study published in Health Affairs by researchers Seth A. Seabury, Eric Helland and Anupam B. Jena

The average size of medical malpractice payments grew 3.4 percent from 1991 to 2003. — Findings by Dartmouth health economist Amitabh Chandra published in Health Affairs

The states with the fewest attorneys were: North Dakota (1,560); Wyoming (1,668); South Dakota (1,865); Vermont (2,270); Alaska (2,442); and Delaware (2,888). — American Bar Association

November 3, 2014 INSURANCE JOURNAL-NATIONAL | 23

SPECIAL REPORT

Professional Liability 3 Trends to Watch for in Architects & Engineers Coverage

rchitects and engineers are high-risk professions. A small error within their designs can potentially lead to construction delays, significant losses and an array of other costly lawsuits. Purchasing professional liability insurance specific to the industry can protect architectural firms from these claims, but as an insurance agent or broker, it’s important to understand the intricacies associated with this type of By Dan Gmelin professional liability insurance. Here are three trends you need to know about insurance for your architect and engineer clients. Modular Building Coverage Modular building or prefab might just be the future of the construction industry. Modular building can be a less expensive, faster and more efficient option than on-site construction. However, it can also pose problems that might otherwise have been avoided if using the traditional building method. Inexperience with modular building is most likely the main reason for some problems. Some product suppliers will not maintain warranties for off-site preassembly. Alignment problems can arise during installation of the modules in the field. If an error is made during assembly of multiple units, this error could be multiplied many times by the number of units being constructed. Transportation of the modular units from factory to job site can cause problems, as well. Understanding the difference between building permits for modular and building permits for on-site construction is important.

gy. The Bureau of Labor statistics expects cy and increasing rents. However, cities energy consulting to be one of the fastest contribute an estimated 70 percent of the growing industries over the next decade. world’s energy-related greenhouse gases, Annual revenue for a five year period is according to UN-HABITAT’s Global Report expected to grow 73 percent during 2012 to on Human Settlements. Thus, pressures to 2017, as compared to the previous five years. make these urban buildings more energy Along with this rapid growth will come efficient will increase. Sustainability ratthe expected hazards, errors and insurance ings, which are currently not mandatory, litigation. Areas of concern outside of the could become the norm, potentially leadalready well-publicized fracking are design ing to a boom in construction of “green” and construction of oil/gas well sites, buildings. installation of wind turbines, photovoltaic These developments raise new risks for system design and engineering, and safety the industry. The push for green buildconsulting related to ings means that all areas in energy. In Coverage for architects and developers who addition to the obvious engineers is a growing class. install outdated, three concerns over energy inefficient property damage, bodily injury, and pollusystems could face scrutiny from investors tion, errors causing financial loss must be for reduced valuations on their investments. contemplated due to the vast amounts of Architects who don’t coordinate early with natural resources at stake and their inherlocal governments on zoning and other regent value. ulations could be liable for the costs associated with construction delays. And let’s not Real Estate Development forget the most important consideration in The future of real estate development real estate — location, location, location — in the United States looks bright, but developers who choose to build outside the fast-evolving trends could pose problems growing urban areas could potentially be for developers and investors alike. Prospects sued by investors for lack of due diligence for profitability continue to improve due in site selection. to increasing interest rates, demographic Coverage for architects and engineers is shifts, a recovery in the housing market, a growing class and the industry and the effects that can help these professionals GenY are having on the by keeping on top of new country. The contintrends and providing speued Asian investments cialized coverage for new in U.S. real estate has and evolving exposures. helped the market for domestic development Gmelin is senior vice president, remain strong. Of particunderwriting leader, archiular interest to investors tects and engineers, for are urban office centers, Hiscox USA. which have low vacan-

Energy and Mining The energy and mining industry is expected to grow much faster than GDP based on the continued development of natural gas production and renewable ener24 | INSURANCE JOURNAL-NATIONAL November 3, 2014

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SPECIAL REPORT

Agency E&O

By Andrea Wells

26 | INSURANCE JOURNAL-NATIONAL November 3, 2014

www.insurancejournal.com

No. 1 Reason Agencies Carrry E&O Coverage

hile many agencies stick with their agency errors and omissions (E&O) carrier, those that do shop around tend to do so when premiums are rising. According to Insurance Journal’s exclusive 2014 Agency E&O Survey, more agencies may be shopping around now. Insurance Journal’s survey found that 61 percent of agencies have had the same E&O carrier for at least the past five years, and 33 percent have had two carriers in the past five years. However, of those that shopped E&O markets, 25 percent said the reason they shopped was for a lower price. Despite widespread availability, agency E&O prices are on the rise. The 2014 survey found that 56 percent of agencies saw E&O premiums increase in 2013 compared with 2012, when only 52.3 percent of agencies saw an increase. The latest survey revealed that 54 percent expect E&O premiums to increase again at the next renewal. Deciding to Shop It makes sense to periodically shop agency E&O coverage, but price alone should not drive the decision to move, according to the experts. “A change in carriers requires a thorough review of policy terms and the assistance from an experienced E&O broker, such as Dealey Renton & Associates, can be essential,” said Christopher Lucas, account manager, agents and brokers E&O, for Dealey, Renton & Associates (DRA) based in Oakland, Calif., which is an exclusive marketing agent for the Liberty Mutual Insurance Agents E&O Program, and currently places coverage for 450 agents and continued on page 28 www.insurancejournal.com

1% 16%

Protect the assets of the agency Required by my carriers Access to risk management information

Agency E&O Premium Change in 2013 Compared to 2012 Increased Decreased Stayed same

84%

32%

56%

12%

Agency E&O Premium Change in the Past Three Years

21% 11%

68%

Increased Decreased Stayed the same

Prediction on E&O Premium mium m Change at Next Renewall 40% Increase Decrease Remain the same

54%

November 3, 2014 INSURANCE JOURNAL-NATIONAL | 27

Increased Agency E&O

Comparison of Changes in E&O Premium By Region

um m

SPECIAL REPORT

40%

Region

Decreased

Midwest East South Central Southeast West

16% 12% 10% 12% 12%

Agency E&O 54%

continued from page 27

Increased Same

54% 27% 57% 26% 56% 19% 56% 33% 50%assoyou benefit41% from having a longer-term

ciation with your carrier? Absolutely,” he said. Sabrena Sally, head of Swiss Re Corporate Solution’s U.S. Agents E&O program, which serves as an underwriting carrier for the Big 19% “I’s” Professional Liability Program, doesn’t see a need to move agency E&O at all — as Lower price 25% long as an agency owner is satisfied with 15% their market’s performance. Nonrenewed due to claims 2% It’s no different than personal insurance, 21% Nonrenewed due to change she in said. underwriting 1% “If you’re gettingcriteria the coverage you need for the exposures you have at a fair Carrier withdrew from agency E&O market 6% price and you’re satisfied with the claim Needed broader coverage 9% service if you’ve had a claim, and there’s Other reasons been no change in the financial stability8% of your carrier, I question why anyone would want to shop,” Sally said.

Annual Cost of Agency E&O Coverage 1% $1,000 or less

Why Change in E&O Carriers

$1,001 to $2,500 23% $2,501 to $5,000

76%

$5,001 to $10,000 $10,001 to $15,000 $15,001 to $25,000 $25,001 to $50,000

10% 9% 10%

More than $50,000

12%

Right Market Agencies looking for errors and omissions 0% 5% 10% 15% 20% 25% 30% liability insurance today have lots of choices 8% if they decide to shop around. Yet, not every 69% ing because it’s not the kind of thing they brokers in California and Arizona. market is the right market for every agency. even want to think about,” he said. “They Curtis Pearsall, president of Pearsall Given the diversity of independent want toAttended think about running their agency.” Associates Inc., a risk management conagencies, making sure that agency E&O80% an E&O class What many agents want from an E&O sulting firm specializing agency E&O, and coverage is properly placed with the right Comparison of Changes in E&O Premium Agency staff has achieved additional designations 39% carrier is solid security. “They just want a special consultant to the Utica National carrier, with the right coverages, is critical, By Region activelyhappens, utilized analysis checklist 37% to knowMore that if something thatan exposure Agents E&O program, agrees that from the experts say. they’re with a carrier that’s going to fight time to time it is good for an agent to shop Region Decreased Increased Same “There are so many different Hired a third-party to perform an agency audit types of7% Midwest 16% honest, but he 54% 27% hard to protect their professionalism,” to keep its current carrier agencies,” said David Derigiotis, corporate 10% Enhanced agencythat focus quality control 62% East recommend 12% 26% Pearsall said. “That’s something agentson internal doesn’t agencies shop every57% vice president and director, Professional 9% South Central 10% 56% agency Liability procedural need 19% to Developed/updated put a value on.” year. Center ofmanual Excellence, at Burns45% & 56% 33% E&O carriers is a significant Changing Southeast “I certainly think 12% there is value in shopWilcox. “Whether it’s an MGA, or a retail 50% West 12%to look at the price 41% 50% decision for an agency, said Lucas, and part ping, but then you have agent handling property/casualty, a life and 31% differential,” he said. If moving to a new of this decision should include considerhealth agency, an agency specializing in ation of the effect a claim could have on the agency E&O carrier means savings of only variables and annuities, a large super regionrelationship with the agency’s E&O carrier. 5 percent to 7 percent, Pearsall questions al broker that’s been in business 30 years, or “Claims happen, and when they do could whether that’s enough. Now, if it’s a 25 pera one man shop who’s independent — their Why Change in E&O Carriers cent savings that’s a difexposures vary,” he said. Lower price 25% ferent story, but agents Aligning various expo1% considerdue Nonrenewed to claims 2% should the value sures with the right covNonrenewed due to change in underwriting criteria 1% a long-term E&O partner erage can be a daunting 6% Carrier from agency E&O market 6% brings to withdrew the table, he task in a market with so Needed broader coverage 9% added. many options, but there 31% Other reasons 8% “I know a number are some factors that can 33% of agents that can say guide agencies in their 61% they’ve been with the shopping. 69% Yes same E&O carrier for “While increased capacNo 40 years and they would ity can be perceived as a Risk Management Steps Implemented never even think of movgood thing, I think it is in Past Three Years

23%

Risk Management Steps Implemented in Past Three Years

New E&O Risk Management ent Steps in the Past Year

Attended an E&O class 80% Agency staff has achieved additional designations 39% More actively utilized an exposure analysis checklist 37%

28 | INSURANCE JOURNAL-NATIONAL November 3, 2014

www.insurancejournal.com

important to recognize the importance of an experienced carrier with a proven track record of commitment to the E&O marketplace,” said DRA’s Lucas. Lucas also recommends that agencies consider a carrier’s longevity in the agency E&O market. While agency E&O markets are plentiful, a new carrier may barge into the marketplace by underpricing risks only to make an abrupt exit in a few years when claims start to exceed projections and its book becomes a surplus drain. Pearsall advises agents that may be considering a move to read their E&O policy carefully to make sure the new carrier will provide the same breath of coverage. “When you get into agency E&O there are some similarities but there are a lot of differences that agents need to be aware of,” he said. “At times agents fall into the trap of moving their E&O from one company to another, and saved some money, but maybe the reason they saved some money is because they got a form that is inferior to the one they had prior.” At a minimum, agents should look at: The definition of — who’s an insured? What constitutes a claim? What is the extended reporting-period option in case the agency is considering to buy, or sell, an agency? Is the agency covered for what it does? “Are there things that you are doing, coverages that you are selling, that are not covered by your own E&O policy? When do you want to find out? Do you want to find out after the claim or before the claim?” Pearsall asked. “They need to read their policy and talk to their agent and/or the E&O carrier or whoever they are dealing with in the purchase of that and ask some questions to make sure they understand their E&O policy,” Pearsall said. Agency E&O is the most important coverage that agents buy and they should “take the time to make a good, solid educated decision,” according to Pearsall. Well-Oiled Agencies The best agency E&O markets are looking for the best agencies to insure, the www.insurancejournal.com

experts say. So what makes a good E&O risk? It boils down to how well agency owners run their shops, according to Burns & Wilcox’s Derigiotis. “It really comes down to the risk management and overall operations in an agency,” Derigiotis said. “That’s more important than anything else. Is the agency well run? Are they a well-oiled shop?”

According to Derigiotis, the best E&O agencies properly document everything. They train employees and have expertise for all the products they sell. Well-run agencies also have standardized procedures. “They have standardized ways of documenting information, whether it’s discussions with their clients, or having continued on page 30

Claims Trends

n terms of agency E&O trends, carriers are closely eyeing an uptick in claims severity. According to Curtis Pearsall, president of Pearsall Associates Inc., a risk management consulting firm specializing agency E&O, and a special consultant to the Utica National Agents E&O program, agency E&O severity has been ticking upward for some E&O carriers but not all. It’s an issue that’s carrier-sensitive based on their book of business. Even so, the trend has caught the attention of some major industry players, he said. “I’m hearing more today than I have in the past of million dollar claims cases — not just the $1 million cases but $2 million, $3 million, $4 million cases. I could give you chapter-and-verse of a number of $5 million E&O cases. I don’t remember that happening 20 years ago,” Pearsall said. According to Pearsall, the average E&O claim is still in the $60,000 range with homeowners-related E&O claims averaging around $30,000 and auto-related E&O claims averaging around $25,000. Pearsall said he knows of a recent case that was settled for $8.3 million. Part of the challenge is that agents have a lot more exposure today with newer coverages and larger accounts. “EPLI [employment practices liability] is an issue that is gaining some traction and agents are offering that more and more. Cyber is an issue that I find a lot of agents not talking with customers about; one of the issues is that a lot agents don’t understand the coverage themselves so they have a hard time explaining it,” Pearsall said.

He said today’s commercial lines generally have much higher limits so that “when there is a problem, the ultimate claim is going to be a lot bigger.” Sabrena Sally, head of Swiss Re Corporate Solution’s U.S. Agents E&O program, which serves as an underwriting carrier for the Big “I’s” Professional Liability Program, hasn’t observed a noticeable uptick in severity in her carrier’s book of agency E&O business, but has noticed another trend. “We are seeing some new activity in the area of proprietary systems in the last 12 months,” Sally said. “Carriers are starting to more often use their own proprietary systems that the agency uses to submit applications and bind business. Like all IT systems, they’re not the same from carrier to carrier and it has led to some claims.” For example, “something doesn’t go through the system. The agent calls the carrier and they end up talking with someone that gives them a workaround, like we all do on IT systems,” Sally said. “Then something ends up not being documented in the system. A claim happens and there’s all of that lack of clarity around what actually happened.” While proprietary systems are not new in personals lines, Sally said they are now more common in commercial lines, which may be a factor in the claims trend. “There’s definitely a developing area there and we’re working to learn more from agents, the Big ‘I’ and from carriers as well, so we can put our heads together and come up with some risk management recommendations,” she said. November 3, 2014 INSURANCE JOURNAL-NATIONAL | 29

$25,001 to $50,000 $25,001 to $50,000 $50,000 More than

SPECIAL REPORT 68%

68% 68%

54%

23%

69%

50%

% 61% 61%

More than $50,000 More than $50,0000%

Agency E&O continued from page 29 a checklist of various coverages that have been covered with clients. They document the kind of insurance and coverage that their client is declining,” he said. Carriers consider a number of factors when determining what makes a good E&O risk, according to Pearsall.

0% 0%

10% 10% 12%

5% 5% 5%

10% 12% 15% 20% 25% 30% 12% 10% 15% 20% 25% 30% 10% 15% 20% 25% 30%

Comparison of Changes in E&O Premium By Region of Changes in E&O Premium Comparison Comparison of ChangesIncreased in E&O Premium By Region Decreased Region Same By Region Midwest 16% 54% 27% Region East Midwest Region

South Central East Midwest Southeast South East Central West Southeast South Central West Southeast

West

Decreased Increased Same 12% 57% 26% 16% Decreased 54% Increased 27% Same

10% 12% 16% 12% 10% 12% 12% 12% 10% 12% 12%

56% 57% 54% 56% 56% 57% 41% 56% 56% 41% 56%

19% 26% 27% 33% 19% 26% 50% 33% 19% 50% 33%

12%

41%

50%

Why Change in E&O Carriers

“That would demonstrate more engagement in risk management,” Sally said. Lucas agrees that a commitment to risk management is essential. He said this can be demonstrated through involvement in professional organizations and continuing education on E&O in addition to having standardized agency procedures.

Quality of People The quality of the Underwriting Details Why Change in E&O Carriers Lower price 25% agency’s staff is a top con Detailed reporting of an Nonrenewed due to claims 2% sideration when it comes agency E&O risk to underLower price 25% Nonrenewed due to change in underwriting criteria 1% to E&O underwriting. writers also helps locate Nonrenewed due to claims 2% Lower price 25% Carrier withdrew from agency E&O market 6% “Agencies don’t make the best market for coverNonrenewed due to change in underwriting criteria 1% mistakes — people do,” age. Nonrenewed duecoverage to claims 2% Neededwithdrew broader 9% Carrier from agency E&O market 6% Pearsall said. “The quality “There is a place in Nonrenewed due to change in underwriting criteria 9% 1% Other reasons 8% Needed broader coverage of people you hire is very the rating formula for Carrierreasons withdrew from agency E&O market Other 8%6% important.” every piece of information Needed broader coverage 9% How the agency marrequested on the E&O Other reasons 8% kets itself is another application,” DRA’s Lucas important consideration, said. “The application is Risk Management Steps Implemented according to Pearsall. the primary tool the underin Past Three Years “How are you promoting writer utilizes to underRisk Management Steps Implemented yourself, what kind of stand your agency and so in Past Three Years Attended an E&O class 80% business are you looking it is prudent to take great for, are you trying to write care in its completion.” Agency staff has achieved additional designations 39% Attended an E&O class 80% everything?” Agencies handling More actively utilized an exposure analysis checklist 39% 37% Agency staff has achieved additional designations According to Pearsall, standard lines of business Hiredactively a third-party to an perform an agency audit 7% More utilized exposure analysis checklist 37% Attended an E&O class 80% there are other considerplaced with admitted carriEnhanced agency focus on internal quality control 62% Hired a third-party to perform an agency audit 7% ations as well, including ers are the most marketable Agency staff has achieved additional designations 39% Developed/updated agency procedural manual 45% the quality of the agency’s agencies, but Lucas says Enhanced agency focusan onexposure internal quality control More actively utilized analysis checklist62% 37% policies and procedures, that providing detailed Developed/updated agency procedural manual 45% Hired a third-party to perform an agency audit 7% the agency knowing what descriptions of business Enhanced agency focus on internal quality control written 62% risk management,” Sally said. “You look for business it wants to write, and strong docin high-hazard lines and non-adDeveloped/updated agency 45% low turnover of theirprocedural staff and staffmanual that carumentation protocols. New agencies can be mitted markets can be helpful in opening ries designations, which indicates an interespecially vulnerable and should consider doors for other agencies. est in continuing education. You look for these key issues to get started on the right Claims history is always important, howan agency that has established procedures. track, he said. ever, even agencies that have experienced New E&O Management Andent if you dig further, agencies that engage The best agencies to insureRisk have top leada severe claim — but have taken steps to in self audits to monitor their procedures, ers who liveNew and breathe risk management, reduce the probability of a similar claim StepsE&O in the Past Year ent Risk Management keep those current, make sure they’re being said Swiss Re’s Sally. occurring in the future — may still be con31% in the Past “When weSteps look at underwriting an Year used the same way by everyone.” sidered a good E&O risk. 31%best agencies to insure from an The very agency, theNew things we look for that point At the same time, agencies with a ent 69% Yes E&O Risk Management E&O standpoint might even spend extra toward good performance outside of a posihigh-frequency of small claims might No inagency the that Past 69% Yes is an time and expense to work with an external tive claims Steps history has Year an be less desirable to underwriters. “The No consultant31% to review agency operations. established management that’s engaged in thought process here is that it may be only

Why Change in E&O Carriers

Risk Management Steps Implemented in Past Three Years

61% Yes No

30 | INSURANCE JOURNAL-NATIONAL November 3, 2014

69%

www.insurancejournal.com

Change at Next Renewall Increase Increase Increase Decrease Decrease Increase Decrease Remain the Remain the same same Decrease Remain the same Remain the same

E&O Pricing

espite widespread availability, agency E&O prices are on the rise. According to Insurance Journal’s 2014 Agency E&O Survey, 56 percent of agencies saw E&O premiums increase in 2013 compared to 2012, which only 52.3 percent of agencies saw an increase. The survey revealed that 54 percent expect E&O premiums to increase again at the next renewal. Part of that increase can be attributed to inflation, said Sabrina Sally, with Swiss Re. Where agencies can see savings in E&O is by maintaining a claims-free status. “Every program I’ve seen provides credits for agencies being claims free,” she said. Even though prices are on the rise, most agencies (69 percent) purchasing E&O coverage say they are satisfied with E&O terms, conditions and limits today, according to the survey.

a matter of time before the agency with a high claims frequency experiences a severe claim,” Lucas said. According to Insurance Journal’s 2014 Agency E&O Survey, while half of all agencies (50 percent) indicated they had never had an E&O claim, 31 percent reported having an E&O claim within the past five years. Less than a quarter (23 percent) of survey respondents said their agency increased E&O limits in the past three years. The vast majority (76 percent) revealed they had not increased E&O limits. The exclusive IJ survey is based on responses from 569 agency owners across the country from Oct. 1-15, 2014. When all is said and done, the most important factor may be an agency’s direct appointments and close relationships with its carriers. “It is these relationships that often determine if an incident will rise to an E&O claim,” Lucas said. Insurance Journal wishes to thank Demotech Inc. for providing analysis once again for this year’s Agency E&O Survey. www.insurancejournal.com

40% 40% 40% 40% 6% 6% 6% 6%

1% 1% 1% 1%

Increased Increased Agency Agency E&O E&O Increased Agency E&O Limit Limit in in Past Past Three Three Limit in Past Three Years Years Years No

23% 23% 23% 23% 76% 76% 76% 76%

No No Yes Yes No Yes Not Sure Not Sure Yes Not Sure Not Sure

Satisfaction cy Satisfaction with with Agency Agency cy Satisfaction with Agency cy E&O Terms, Conditions E&O Terms, Conditions E&O Terms, Conditions and and Limits Limits and Yes YesLimits Yes No No Yes No Somewhat satisfied Somewhat satisfied No Somewhat satisfied Somewhat satisfied

E&O E&O Claims Claims History History E&O Claims History of of Respondents Respondents of Respondents

Never Never had had aa claim claim Never had a claim Had a claim in the Had a claim the past past 5 5 years years Never had a in claim Had a claim in the past 5 years Had a claim 6 to 10 years ago Had a claim 6 to 10 years ago Had claim 6 into the 5 years Had aa claim 10past years ago Had a claim more than 10 years Had a claim 6 more 10ago years ago ago Had to 10than years Had aa claim claim more than 10 years ago Had a claim more than 10 years ago

Number Number of of Agency Agency E&O E&O Number of Agency E&Os Carriers Carriers in in Past Past Five Five Years Yearss Carriers in Past Five Yearss One One carrier carrier One carrier Two carriers Two carriers One carrier Two carriers Three carriers Three carriers Two carriers Three carriers More than three More than three carriers carriers Three carriers More than three carriers More than three carriers

54% 54% 54% 54%

8% 8% 8% 8%

23% 23% 23% 23% 69% 69% 69% 69%

10% 10% 10% 9% 10% 9% 9% 9% 31% 31% 31% 31%

50% 50% 50% 50%

1% 1% 1% 6% 6% 1% 6% 6% 33% 33% 33% 33%

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November 3, 2014 INSURANCE JOURNAL-NATIONAL | 31

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Agency E&O E&O Insights: How Important Is Your E&O Policy?

rrors and omissions (E&O) coverage: It’s one of the most important coverages you can secure. After all, your agency’s protection depends heavily on your E&O policy and how it works. Despite this, it is debatable how many agency owners truly know the intricacies of the coverage’s different elements. Without this knowledge, how confident can an agency owner be that when a probBy Curtis M. Pearsall lem arises, the agency will be well-protected and not financially devastated? Some agencies buy E&O only because their agency agreement requires it. Hopefully, the number of agencies that look at their E&O in this manner is minimal. They apparently don’t realize that buying the “wrong E&O coverage” has the potential to “bring the agency to its knees” at the time of an E&O claim. Understand What Is and Isn’t Covered Every E&O policy includes a list of professional services and activities that are covered. It is critical for an agent to review this list to see if there are activities he or she is performing, but for which the agent has no insurance. Activities can vary greatly, so don’t assume all policies are the same. In addition, every policy contains exclusions, so review those, too, to determine to what degree those exclusions are of concern for your agency. If, after reviewing the list of covered activities or exclusions, you are not completely clear what is and isn’t covered, ask your E&O carrier or the agent through whom you purchased the coverage for an explanation. Unfortunately, over the years, there have been many situations where the agent found out, after being presented with an E&O claim, that he or she didn’t have the coverage the agent thought. 32 | INSURANCE JOURNAL-NATIONAL November 3, 2014

Know Your Limits and How They Work This is a crucial aspect of your coverage. Typically, agents only have one time a year to modify their limits: at renewal time. Request various limit options to consider and devote sufficient time to review those options. There is no magical formula to determine the “right” limit for your agency. Understand that the size of the agency is not a determinant of the potential size of an E&O claim. Big claims can and do happen even with small agencies. While E&O claims arising from personal lines tend to be smaller, big E&O claims can happen even with these types of agencies. E&O limits are provided on a per-claim/ aggregate basis, so don’t hesitate to ask the underwriter for options. The bottom line is that a $1 million limit is insufficient. When purchasing E&O coverage, look to have the aggregate limit be a multiple of the per-claim limit. This way, you can feel comfortable that should that “big loss” hit your agency, you will still have coverage for future claims.

Understand How the Deductible Works Are you only required to pay the deductible if your agency is determined to be liable, or are you responsible for defense costs on claims even where your agency is absolved of any wrongdoing? While there is a premium savings if you want to handle some of the defense costs, serious consideration should be given to ensure you have the funds available if the E&O carrier requests payment for the deductible. Don’t wait for an E&O claim to occur to find out how your policy works. Use Your E&O Carrier’s Resources and Expertise Your E&O is more than just a policy. Most E&O carriers provide their agent-customers with resources to help those agents manage their E&O exposure. In most cases, this involves the usual articles and tips. However, the staff of many E&O carriers, typically the claims and underwriting folks, is readily available to answer queswww.insurancejournal.com

tions on procedures or a multitude of other E&O matters. If a potential E&O issue surfaces, agents should not hesitate to contact the claims staff for its perspective. These professionals will help guide you on your future actions. Report Any Claim, Error or Concern Promptly The earlier an agent advises the E&O carrier of an issue, the quicker the carrier can begin its discovery to determine what happened. Don’t assume the matter will simply “go away.” They rarely do. Be Aware of These ‘Don’ts’ Don’t admit liability or commit to a payment. An E&O policy is based on the concept of legal liability. In other words, just because the agent made a mistake, legal liability would need to proven before the policy will pay. There are many defenses E&O carriers can apply that could eliminate or

reduce the degree of their legal liability. It might be natural for an agent to want to admit he or she made a mistake and advise a client that the E&O policy will pay. An admission of liability could impair the ability of your E&O carrier to settle the claim at the best possible terms. In some situations, it could actually jeopardize your E&O coverage.

it with your E&O carrier.

Big claims can and do happen even with small agencies. Don’t provide any recorded or written statements concerning the alleged error or omission. Don’t alter or make changes to any records pertinent to the claim. Don’t discuss the matter with anyone other than your own personal counsel or E&O carrier representative. Don’t allow the inspection, copying or removal of any records without discussing

Your E&O Is Serious Business In many respects, the decisions you make regarding your errors and omissions — your carrier, covered activities, limit, deductible, etc. — are among the most important decisions you will make during the year. These decisions can only be made before the claim. The other set of decisions, made after you have been presented with a claim, are equally important. Work with your E&O carrier to ensure you understand your coverage and how it works. This should help you sleep better at night. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@ pearsallassociates.com. Blog: www.agentseotips. com.

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November 3, 2014 INSURANCE JOURNAL-NATIONAL | 33

SPECIAL REPORT

Professional Liability 4 Trends to Watch in Professional Liability for Accountants

here’s no shortage of accountants in the United States today, and the growth of this industry is not expected to slow anytime soon. In 2013, there were 1.17 million accountants and auditors and 1.59 million bookkeeping, accounting and auditing clerks employed in the United States, according to the U.S. Bureau of Labor Statistics. The number of accountants/auditors and their staff is forecasted to rise to 3.44 million by 2022. The revenue of the accounting, tax preparation and payroll services industry in the United States reached approximately $137 billion in 2013. By 2018, this industry is expected to generate around $160 billion. That’s one reason why Greg Leffard, president of professional E&O at The Hanover Insurance Group, sees this segment as an area of opportunity for agents and brokers. Leffard spoke with Insurance Journal’s Andrea Wells in mid-October to outline a few key trends in the errors and omissions issues to watch in the professional liability (E&O) liability market for accountants market for accountants. today. While the accountant E&O market has Affordable Care Act been a relatively stable marketplace, Leffard Greg Leffard: One of the things that we says a few more competitors have entered see in the marketplace right now that our the segment in the past couple of years. accounting clients are facing includes issues For agents considering targeting this niche, concerning fines and penalties under the there’s plenty of potential for growth. Affordable Care Act. There are penalties One bonus — accounting firm clients for those who do not have health coverage. often generate referral business for their Those fines are actually levied through tax insurance agent partners, Leffard said. returns. That’s a new devel “One of the things that is interesting about the agent’s ‘Accountants tend to opment and something relationship with their be a good source of that a lot of people are accounting clients is that referrals for agents.’ talking about. Individuals and businesses that are not accountants tend to be a represented by an accountant may have difgood source of referrals for agents,” he said. ficulty in this area. “If an agent writes an accounting firm and It’s an issue that we obviously expect does a good job for that firm, they establish accountants to be up to speed on as they a good relationship and that repeats itself prepare tax returns for their clients. If a tax over and over.” That’s because like agencies, return is filed incorrectly, and their client accounting firms do business with many has to pay a fine or a penalty due to an other people. “If they’re satisfied with the incorrect filing, that client would obviously agent’s service, the accountant will generate seek some recovery from their accouna good referral flow.” tant. It wouldn’t be a direct action against Here are four trends Leffard outlines as 34 | INSURANCE JOURNAL-NATIONAL November 3, 2014

the accounting firm by the government. However, the accounting firm client would be adversely impacted by the filing mistake and would therefore be seeking some reimbursement or compensation because of that. It’s been a pretty big topic of conversation so far. Baby Boomers and Wealth Transfer Leffard: The second trend that we see happening right now has to do with retirement planning for the baby boomers generation. As baby boomers plan for retirement, there’s a lot of discussion and work being done with accounting firms around the idea of wealth-transfer. Many baby boomers have family businesses to transfer, or have needs for other wealth transfer mechanisms such as estate plans. They really are relying on their accountants to steer them in the right direction and make sure that their wishes are complied with, while at the same time they’re also minimizing their cost or their tax liability. We think that that’s a big area that will continue to grow over the next continued on page 36 www.insurancejournal.com

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Professional Liability continued from page 34 several years as those of us who are in that baby boomer generation continue to age. … One of the things that we ask in our underwriting process is: What areas of practice does the accounting firm get involved in? There are accounting firms that have some specialization in the area of wealth transfer, and then there are also general accounting firms that do not have that specialization. As a general rule, we think that those who are specialists and have some background and experience in a specialty area are probably a better risk for us.

has to do with an accounting firm that is providing services to the partnership (the client). In some of these claims scenarios, there might be an allegation that the accountant is favorably treating one partner over another. It doesn’t happen all the time, but the idea of favoritism is very difficult to defend. It ends up being a “he said, she said” situation. We think that the use of an engagement letter that specifically spells out who the firm is representing and lays out the ground rules for that representation is a great risk management technique. That’s one way to overcome this issue.

Partnerships 7.25X4.75 Leffard: Another trend that we are seeing JGS-PPP Umbrella Program ad from a claim perspective is an uptick in INSURANCE JOURNAL some partnership issues. This uptick in

Information Security Leffard: The last issue is just the whole area of information security. That is a huge topic, not only with accounting firms, but also for every individual and buisness right now. Obviously, accountants, by the very nature of their business, have a lot of per-

claims has to do with partnerships that are dissolving, or perhaps seeking some additional financing, or doing something out of the normal course of business. It really

sonally identifiable information or business sensitive information — information that is not known by the general public. If they have that information on a laptop and it gets stolen or if they misplace some work-related documents and that information makes its way into the wrong hands, that’s an exposure that they need to have coverage for. This is an area that accounting firms need to be cognizant of and make sure from a risk management perspective that they’re addressing those issues. We do see a lot of accounting firms that will purchase a separate cyber liability coverage. However, even in our own accountants professional liability policy we offer some information security coverage in the policy form. We’re going to beef-up the coverage even more next year. That’s one of our priorities for 2015 — is to make sure that we have a product that adequately addresses this exposure.

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Tech Talk Predictions on the Demise of the Independent Agent Are Premature Yet … By Tom Wetzel

his column has covered a number of important technology issues facing agents, including security, social media, mobile technology, and the customer experience. A groundbreaking study issued last month and an equally sobering and hotly discussed report from last year makes clear that agents cannot put off taking action on these issues even as the debate rages on. The just-released “Evolution and Revolution: How Insurers Stay Relevant in a Digital Future,” by The Boston Consulting Group and Morgan Stanley Research reports that insurance consumers don’t just prefer digital experiences, they expect them. “Consumers expect digital experiences with insurers to become more “direct, simple, seamless, and intuitive” the report says. Further, “consumers expressed strong interest in insurers developing products that apply technology-driven capabilities and are deployed close to the source of their needs” and “that digital native insurers are well-positioned to address these consumer expectations and can operate much more efficiently.” The phrase “deployed close to their needs” implies a role for independent agents though the report glosses over their role. Ron Berg, executive director at ACT (Agents Council for Technology), believes

38 | INSURANCE JOURNAL-NATIONAL November 3, 2014

the report misses the mark. “It seems that the big opportunities are not just for insurers to develop innovative and intuitive digital solutions more rapidly to meet consumer expectations, but develop those solution sets to enable their independent agent and broker partners in staying a part of their customers’ support structure,” he says. “This could be accomplished whether it is the momentof-truth points the study highlights such as claims handling, or other aspects such as servicing to sharing of analytics and business intelligence.” The BCG/Morgan Stanley report also calls for the need for insurers to completely rethink their customer engagement model. Last year’s blockbuster report from McKinsey & Co., called the “Agents of the Future: The Evolution of Property and Casualty Insurance Distribution,” elicited both praise and criticism, the latter taking issue with the underestimation of an agent’s local footprint, personal relationships, and consumers’ preference for advisers they know as compared to large institutions. The report states that “where agents once served as the front-line in risk selection and pricing, advances in predictive models are making this role obsolete. The agent was once the face of the insurance brand; now customers increasingly use multiple channels to connect with their carrier. Perhaps most disruptive to the

traditional agent value model, auto insurance — which accounts for 70 percent of personal lines premiums – is fast becoming commoditized.” “The McKinsey report shines a great light on not just the digital challenges but also the tremendous opportunities for independent insurance agents, provided they act on them quickly,” says ACT’s Berg. “All business models must now rely heavily on digital tools; it’s what consumers want. What’s so exciting, however, is that consumers also hunger for a trusted adviser relationship with their insurance agent. Independent agents who marry the two will be big winners in the years ahead. That’s an opportunity direct writers can’t fully execute.” Both reports are available online. The McKinsey report is at www.mckinsey. com. The BCG/Morgan Stanley report can be found at https://www.bcgperspectives. com/content/articles/insurance_technology_strategy_evolution_revolution_how_ insurers_stay_relevant_digital_world/ Wetzel is owner of Thomas H. Wetzel Associates, which specializes in social media programs for agents. Email: twetzel@wetzelandassociates.com.

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Cyber Liability How to Determine Your Clients’ Cyber Exposures

yber Liability is certainly one of the hottest topics in both the media and insurance industry today. It seems like headlines and news stories announce new victims of data theft almost on a weekly basis. But even with all the attention that personal data theft and cyber liability are getting, many insurBy James O’Neill ance professionals are still reluctant to engage their insurance clients on the personal data theft and cyber liability exposures that face them. In most cases, the lack of familiarity suggests there is a need for an organized approach to assessing personal data theft and cyber liability exposures. Here is a basic overview of who has an exposure and the options available to deal with it. Does my client have personal data theft or cyber liability exposures? If your client stores or collects personally identifiable information in either a written or electronic format, they have an exposure. In the event of either a physical theft or an electronic theft of the information stored, your client could be financially impacted in multiple ways. Your client’s liability to those whose records have been impacted could be only part of the total cost. There are 47 states and multiple federal agencies with laws and rules regarding personally identifiable information and the required notification to and monitoring of record holders following a breach. You’ve probably received a letter yourself letting you know that your record may have been compromised and that your credit will be monitored. Did you know the estimated cost of everything going on behind that letter is $228 per record? To put this in perspective, insureds with just 250 records at an estimated cost of $228 40 | INSURANCE JOURNAL-NATIONAL November 3, 2014

for monitoring and notification per record would incur a cost of $57,000. That’s before anyone loses a dime as a result of the theft. Few businesses deal with fewer than 250 customers over time. Most definitions of personally identifiable information in legislation include name, address, date of birth, Social Security number, credit card numbers, email addresses and passwords as information that must be safeguarded. Be aware that definitions of personally identifiable information are expanding.

Does your client interact with the internet? Many companies actually conduct business via their website accepting credit card payments either directly or through a third party vendor that they link to. Companies also use their website, Facebook or LinkedIn page as a source of communication with their clients. Companies also upload and download data to third party vendors. Consider your agency using a rating program for a carrier. Imagine a virus being uploaded from your system disabling the carrier’s site. Many businesses interact similarly within their industries. How should you deal with exposures? Almost every business has some exposure. Now, what’s the best way to deal with the exposure? Avoidance is one method. If your clients

do not have an incident or a breach they are all set. The other name for this is luck. Statistics would argue against relying on luck. More than nine million Americans have been victims of identity theft resulting in more than $5 billion in losses. Over the next few years it is estimated that almost everyone in the U.S. will be a victim of some form of identity theft. Security is another method. Increasing security and expanding training in the handling of information is a great way of protecting information and networks from threats. Internal protocols, access limitation and training can reduce the possibility of rogue employees, accidental dissemination or external hackers gaining unauthorized access. While most companies agree the expense of security is more than worth the cost of a serious system breach, it is almost weekly that we hear of a top company having their sophisticated system breached. Finally we come to insurance. While insurance neither prevents nor deters cyber attacks, it does reduce the financial impact following an incident or breach. Additionally, insurance programs can be designed to cover multiple data and cyber liability exposures within a budget. Most policies today also provide an emergency response service that immediately responds and assumes management of the incident. In summary, almost every client has some personal data theft or cyber liability exposures. If they store or collect personally identifiable information or interact with the internet there is some level of exposure. Security and training can minimize the potential of an incident but most prudent business owners would supplement this with some level of insurance protection given the statistics and trends. O’Neill is the president of the wholesale division of New Empire Group, a national program manager offering real estate, cyber liability and inland marine programs.

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Distribution Spending on Agents Always Beats Spending on Ads

recent research report published by Cliff Gallant and Matthew Rohrmann of Nomura Equity Research concludes that spending on advertising beats spending on insurance agents. Once again Wall Street gets it wrong! Their logic is flawed. The authors choose to focus only on advertising spend in 2013 and limit their By Brian S. Cohen analysis to the top10 auto insurers. They then compared the advertising spend to premium growth that year. Since GEICO spent the most on advertising and had the largest premium growth, the authors conclude that advertising beats spending on agents. One year’s advertising spend does not account for GEICO’s 2013 premium growth. The company has spent decades building its brand awareness. Since the mid-1990s, GEICO has spent billions of dollars to become top of mind as the company to consider for cheap auto insurance (a.k.a. “1-800-cheap insurance”). If GEICO stopped advertising, its growth would stop because it has almost no other way to reach consumers. (Even the king of direct-response insurance has 150 insurance-agent locations.) But other important factors account for GEICO’s performance: namely, its strategy to grow premium even if unprofitably. In 2011 for example, GEICO saw its profits plunge 48 percent while its advertising costs increased 9.4 percent. GEICO can afford to grow unprofitably because its owner, Berkshire Hathaway, is more interested in generating insurance float for investing rather than consistent profits. (Editor’s Note: According to Berkshire Hathaway’s 2011 annual statement, page 66, GEICO’s underwriting profit was $576 million 42 | INSURANCE JOURNAL-NATIONAL November 3, 2014

in 2011, compared to $1.1 billion in 2010 and A strong agent-based distribution $649 million in 2009. The combined ratios channel creates a long lasting and were 96.3 in 2011, 92.2 in 2010 and 95.2 in compelling strategic advantage. 2009. More recently, GEICO’s underwriting profits were $680 million in 2012, and $1.1 billion in 2013; associated combined ratios were percentage who renew without shopping. 95.9 and 93.0 in 2012 and 2013, respectively, “GEICO’s marketing spend helps it domiaccording to Berkshire’s 2013 annual report.) nate consideration, while its focus on price A better way to evaluate whether to and convenience draws price-sensitive and advertise or invest in agents is to compare convenience-focused shopper segments that cost of acquisition and retention. While negatively impact performance in the loyalGEICO scores high in initial consideration, ty loop,” the McKinsey study says. it lands in the middle of the pack when Forward-thinking insurance companies it comes to the actual insurance purchase, are designing programs for their agents to according to McKinsey’s 2012 Auto Insurance leverage these new capabilities. These comCustomer Insights Report. It costs GEICO relpanies are finding they get a much bigger atively little to get a consumer to make an return on investment than with a traditioninquiry, but a lot more to have someone buy al advertising spend. a policy. Consumers want choice today, and they Furthermore, agent-oriented insurers expect to do business with companies that score much higher in retention than GEICO can provide a multi-channel experience. A and other direct-to-consumer auto insurlocal agency that a consumer can visit, call, ance companies, the same 2012 McKinsey or access via a website provides the experireport said. ence that today’s consumer demands. The high Pressure on companies to increase their retention numbers advertising led to the insurance advertising for agent-based wars of the last decade. Many companies insurance compadiverted dollars from their agents to pay nies demonstrate for increased advertising. But that trend that companies appears to be changing as companies realize that underinvest the power of agent-based distribution. For in their agents do example, even Allstate recently announced so at their own a renewed commitment to grow its agency peril. Local agents distribution channel after years of neglect. build long-term A strong agent-based distribution chanrelationships nel creates a long lasting and compelling with consumstrategic advantage. Blindly ramping up ers. Advertising the ad budget is a simplistic, ineffective doesn’t. solution. Spending on ads just creates an With the advent of the digital age, comindistinguishable commodity product panies can generate bigger returns on their where price and a cute mascot are the only investment in agents. This goes against differentiators. conventional wisdom. However, cloud computing, digital marketing, and social media Cohen was formerly CEO of Pacific Specialty let agents compete against the industry’s Insurance Co. and was also chief marketing officer “brand behemoths” in their local communiat Farmers Insurance. He is currently president ty. and CEO of Strategic Growth Advisors LLC and an The McKinsey study shows GEICO operating partner with Altamont Capital Partners. scoring low on loyalty as measured by the Email: bcohen@cohenadvisory.com. www.insurancejournal.com

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The Competitive Advantage Should Agency Owners Find or Develop Salespeople?

was going through some old files and found an article from 20 years ago discussing how difficult it was to find quality new producers. The author discussed the partial solutions he had discovered running his agency. Two points struck me when I read the article: Nothing has changed in 20 years By Chris Burand regarding what partially works. The article focused, as almost all such articles do, on finding producers. No mention is made of developing producers. Good salespeople are a precious resource in every industry. This is why the old adage, “If you can sell, you’ll never find yourself unemployed for long,” is so true. A shortage of good producers always seems to exist. In fact, many acquisitions are driven by the seller’s inability to find enough good producers to grow their agency. When they sell, they are effectively giving up. One reason these people give up is because they are following the points listed everywhere relative to what partially works. That which is partially effective fails totally. The key missing ingredient is the agency owner’s self-awareness. The key to building anything is a strong foundation, and when hiring and developing producers, the cornerstone of the foundation is the owner’s level of self-awareness. Get Out and Hustle Over time, I have tired of hearing agency owners tell me the solution is for producers to just get out and hustle, be “a man,” and work brutally hard the way they did to build their books. Hard work is clearly required and often deficient, but that approach shows a clear lack of self-awareness. First, it is patronizing and self-aggrandizing. Second, pure hard work in today’s world is unlikely adequate in the time44 | INSURANCE JOURNAL-NATIONAL November 3, 2014

frame required unless the person has far more than their share of charisma. Third, it is an abdication of leadership responsibility. To develop a salesperson rather than finding one, the agency owner must take responsibility for being an internal leader. The leader must establish a clear direction. The leader must establish accountability for following a specific course. That course includes accountability for everyone in the agency involved in developing the producer. (I find it interesting how many people selling themselves as consultants, sales trainers, etc., put all the burden of developing producers on the producers and virtually none on the agency owners. Maybe they know that if they allocated the required effort to the agency owners, the owners would not buy their consulting services.) For a producer to just go out and work hard means the producer sets his or her own course, which may or may not correlate to the direction, ethics or model the agency seeks. This is a key reason so many producers that do succeed are so disruptive within the agency. A reluctant leader, a term my associate Jay Brenneman uses so well, likely will not find more than one, if even one, good producer in their career. Simply finding a quality producer is so improbable that it

seems by now, fewer agencies would still be pursuing this course. But it makes sense so many do because pursuing that winning lottery ticket is easier psychologically than becoming a true leader. This sounds harsh, and although it is accurate, it is somewhat unfair. It is unfair because many agency owners became agency owners without ever having any intention of being an internal leader. The conundrum is that to grow with producers, one has to be a leader, hire a leader, or partner with someone who becomes this inside leader. Create a Passion I am a firm believer that a person must have certain innate traits to sell. The good news is that more people than might be expected possess at least some of these traits. The job of the leader then is to develop these traits in people other agencies would dismiss. An option for accomplishing this is to develop a person with considerable innate selling skills, but without insurance experience, and teach them insurance. This works exceptionally well in agencies with leadership that is willing to invest the time and money to build the producer’s success. To me, if these qualities exist, this is a no-brainer solution. continued on page 46 www.insurancejournal.com

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  

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The Competitive Advantage continued from page 44 However, finding these people is still easreluctance is to create a passion. This is why ier said than done. The odds are far higher people who have had a life-changing event, though than finding a seasoned, successful whether it is a religious event or a health producer without event, become so passionate a non-compete. their message they To develop a salesperson about One key method have to share it. Barring a for improving these rather than finding one, life-changing event, creatodds is to pay more. the agency owner must ing passion in an agency A good salesperson take responsibility for requires leadership. needs your agency Who would ever believe being an internal leader. so much far less than your in insurance they agency likely needs would become so passionate him or her. The fact is the higher the comas to overcome their reluctant tendencies? pensation for most any position, the higher Yet making this happen, being the leader quality applicants you will get. that makes it happen, is essential. The But, if you do not want to pay more Gallup Organization did the largest study and/or you need to find an alternative or ever of organic growth-drivers. The No. 1 enhance this solution, consider also develfactor per their book, The Coming Jobs War, oping salespeople with less innate talent. is whether the employees are engaged. In No one in this industry ever truly discusses other words, do all the employees believe this solution, and the reason is the lack in their employer and what the employer is of leadership. One way to overcome sales selling?

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Value of Insurance I meet and speak to thousands of insurance agency personnel annually. Rarely do I find people that truly understand how important insurance is. The people that work most closely with clients treat insurance as a commodity, as a purchase to get through, as drudgery rather than understanding the great good that insurance provides. For anyone interested in an inspiring story of how insurance has advanced the welfare of common people, read Against the Gods: A Remarkable Story of Risk, by Peter L. Bernstein. Insurance is the one essential purchase that all concerned hope to never use. But when an agency sells the right coverage that enables a family or a businessowner whose operations support dozens or hundreds or thousands of families to recover from an otherwise devastating loss, what a great result. How can someone not get excited about providing that outcome? Insurance is incredibly beneficial. It is incredibly important to society and to our economy. We already have a start because most CSRs, especially, already truly care for their customers’ well-being. They just do not know how to take it to the next level. Lead the agency. Show ALL your employees, staff and producers, how the agency, by selling the most complete coverages (vs. quoting requested coverages or minimal coverages or expiring coverages), absolutely benefits their clients. Some training for the leaders may first be required, but that is easy. The leadership is the tough part. If you care enough and lead your staff to care enough, you will realize an increase in sales. Furthermore, you will get more referrals because your customers will recognize how much everyone in your agency cares. Your people will care so much about making sure their customers have the best coverage, they will not fear rejection. They will be led by their hearts rather than their fears. And you may very well find the missing piece to the puzzle of developing successful producers. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719485-3868. E-mail: chris@burand-associates.com.

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Charity IICF’s Early Literacy Campaign with Sesame Workshop Inspires Parents, Industry By Amy O’Connor

Parents reported the website enhanced their interest and confidence in talking, reading and writt’s been about a year since Elmo and ing with their child. The website Cookie Monster became part of an indusoffered tips and advice that parents try-wide effort by the Insurance Industry wouldn’t have thought of on their Charitable Foundation (IICF) to promote own. Parents increased the time early literacy, and it isn’t just kids who love they spent engaging in talking, readthe fuzzy monsters. ing and writing interactions with IICF and Sesame Workshop’s early littheir children from the previous 10 days. eracy campaign, “Every Day is a Reading Plus, children enjoyed and learned from the and Writing Day” — which offers free early website and their interest in talking, readliteracy materials and resources online — ing and writing activities increased. has solicited a “tremendous” response from “What was amazing was that it really the insurance industry from a distribution informed much more about how [parents] and fundraising standpoint, according to can talk and read and write with their Kim Saccaro, executive director of IICF’s children during everyday moments, not Midwest division. just time set aside, and they actually spent In the first year, IICF has already raised much more time doing those activities a substantial portion of the planned threetogether,” says Dr. Jeanette Betancourt, year grant of $750,000 for the Sesame senior vice president for Community and Workshop initiative through carrier, agency Family Engagement at Sesame Workshop. and industry association sponsorships, as “That is really, really significant because well as individual and personal donations. the period of time that they had that expo “What has been really unique and special sure to the website was only 10 days. And about this program is our ability to engage already, there was a significant difference.” companies that may not have been involved These results will help to strengthen the already with the IICF,” Saccaro says. partnership with IICF, But more ‘What has been really Betancourt says, because important is the it shows the program is impact the prounique and special about and that the gram is having on this program is our ability working materials are useful, easy young children. to engage companies that to use and appealing, and Results from a may not have been involved making a difference. June study com “It proves that our missioned by already with the IICF.’ relationship is not only Sesame Workshop a good one, but also a committed one and to evaluate the impact of the initiative are that we’re both on the right path,” she says. encouraging. The study of 195 English and “Now the next steps are how you make an Spanish-speaking parents of three- to fiveeven bigger difference disseminating and year olds using the “Every Day is a Reading implementing this further.” and Writing Day” website was conducted by Saccaro says the survey results have estabPlayScience LLC over 10 days. Parents comlished that Sesame Workshop is where the pleted a pre- and post-survey to measure IICF hoped they would be and will help how exposure to the website and materials keep the rest of the insurance industry influenced their child’s reading, writing motivated to stay involved or start particand talking behaviors and the parent’s own ipating. “We were really impressed and interaction with them in these areas.

48 | INSURANCE JOURNAL-NATIONAL November 3, 2014

excited to see also that the talk, read, write and language videos ranked in the top 10 video downloads for Sesame Street on iTunes. Those were all created specifically within the program and funding,” she says. Why Early Literacy? While it may seem like a no-brainer to support early literacy education efforts, Saccaro says they were surprised to learn that isn’t actually the case. “What we found once we selected Sesame Workshop is we are the first entity and industry as a whole to solely focus on early literacy from a funding perspective,” she says. “Early literacy happened to be an area of focus that was really challenging for them to get support. I think there is a perception for this age of ‘what is literacy? Do we need to put money toward that?’ For some people, it is considered less definitive before kindergarten.” Betancourt says early literacy is a huge factor in enhancing children’s development. “Talking to them, reading with them, giving them opportunities to do their scribbles – those are the first steps of literacy. But what happens is often parents and caregivers, especially those that may not have as many resources or opportunities economically, don’t have a lot of the information and how to expand it, how to take advantage of everyday moments and opportunities.” Marlene Ibsen, Travelers Foundation president and CEO, was part of the advisory committee working group that helped form the concept for the IICF’s initiative. continued on page 50 www.insurancejournal.com

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Charity continued from page 48 She was also surprised to find out that there isn’t a lot of support for basic literacy. “There is really a big gap out there, and that was surprising to me, especially for an organization like Sesame Workshop. They were really thankful that IICF was thinking about this and offering the opportunity to build out this program and spread the word,” she says. Travelers has been committed as a presenting sponsor since the initiative launch, with its $50,000 donation to the program for one year. Ibsen says the results of the impact study, as well as the carrier’s desire to help move the program forward, give her no reason to believe the company will not continue to support the partnership at the same sponsorship level. The company also has plans to become more involved with the initiative through its field offices. “For the first year and having been part of the [startup] process, we wanted to be sup-

portive, but we also wanted it to take a little more form and see how it’s working,” Ibsen says. “Our more hands-on efforts are just getting underway, and they will really be about making sure our community relations committees are aware of this in all their communities.” The IICF also is already working on its next steps, which are to begin widely distributing the materials in underserved and low-income communities, as well as garnering more support for the partnership from the insurance industry, and of course fundraising.

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Saccaro says this is the first national grant the IICF has funded where all four of its divisions across the country are coming together, and it is a great opportunity to engage the rest of the industry and other organizations that have not previously been involved with the IICF. During IICF’s annual Week of Giving in mid-October, it planned to kickoff the next phase of the initiative by partnering with public libraries in Chicago, Los Angeles, New York and Dallas to distribute materials. Also, the “Every Day is a Reading and Writing Day” website will be featured on library computers at all 80 of the Chicago Public Library’s branches. Saccaro encourages those in the industry who would like to participate in this initiative in their community and spread to go to IICF’s website at iicf.org. There is also a link to a volunteer guide book. Industry professionals can link to the program materials on their websites and in communications to their clients and vendors. Companies and supporters that commit financially will be provided with an “Early Literacy Seal” that links back to the IICF’s website. A unique benefit the insurance industry has, Saccaro says, is how big and far-reaching its network is. IICF hopes the industry can tap into this network to spread the program’s message and materials now that it is fully underway. “We are really putting out a call to the industry to help us do that,” Saccaro says. “The insurance industry has the ability unlike any other industry to get these materials out to the hands of the children and families who need them.” Sesame Workshop’s Betancourt says the reaction since partnering with IICF has been “inspiring.” “To us, it’s amazing that the insurance industry, who is not necessarily in the early childhood sphere, is really excited and committed to engage, deliver and make everyone aware of these kinds of resources and the idea of literacy in early childhood. I think that’s what’s so effective,” she says. www.insurancejournal.com

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SPOTLIGHT

Habitational/Dwelling Understanding Condo Association & Unit Valuation By Christopher Boggs

uite a few pieces must be in place to ensure no coverage gaps exist in either the condominium association’s or unit owner’s coverage picture. Three questions must be considered by the agent writing the coverage: • Who is responsible for what property? • What is the value of the insured property? • Who can be held liable for injury or damage? This article discusses the property valuation considerations. To find out more about property and liability coverage for condo associations and unit owners, visit: www.ijacademy. com/insurance-books, “Writing Property & Liability Coverage for Condos.” Valuation Statutes and even associational declarations differ on the valuation method required when placing insurance coverage on the association’s property. Actual cash value (ACV), replacement cost (RC) and even market value are mandated options in statute and associational declarations and bylaws. Most statutes require actual cash value as recommended by the Uniform Common Interest Act. Ohio statute (531116) requires the association property be insured based on fair market value and other statutes mandate replacement cost. Again, statutes are only the default setting. Insurance limits should be no less than the amount developed when the valuation method required by the declarations is applied to the property. However, replacement cost is recommended regardless of the amount required by statute or covenants, conditions and restrictions (CC&R’s). Defined Values Three distinctly different property “values” can be assigned to associational property: actual cash value, replacement

52 | INSURANCE JOURNAL-NATIONAL November 3, 2014

cost and market value. Two are common to insurance, and one generally has no relevance in insurance, until the government or an unknowing attorney gets involved. Actual cash value (ACV) is the cost new (replacement cost) on the date of the loss minus physical depreciation. Physical depreciation results from use and ultimate wear and tear meaning that the insured does not get paid for the “used up” value of the property. Attention must be paid to the beginning point in the calculation of ACV, the cost new on the date of the loss. ACV is not based on the value when it was built or at any point between the construction date and the date of the loss. Only the cost new on the date of the loss matters; this is key when choosing limits. Replacement cost is the cost to replace with new material of like kind and quality on the date of the loss. There is no allowance or penalty for age, depreciation or condition. The insured must simply insure the property at what it will cost to buy or build it today. Market value is negotiated between and agreed to by a willing buyer and a willing

seller. It can fluctuate up and down based on the economy, condition, use or need and has little relation to the true cost to rebuild a particular structure. Normally, market value has little relationship to insurance. The rise and fall of the market value does not necessarily change the cost to rebuild a building following a loss. If the market value is the rule applied in a particular state or association’s declarations, the agent must be prepared for and be able to explain this concept regardless of the fact that such value is not normally associated with property insurance values. Values and Coverage Provided by the Unit-Owners Form (HO 00 06) Unendorsed the Unit-Owners Form provides replacement cost coverage on the building (Coverage “A”) and actual cash value on personal property (Coverage “C”). Coverage “A” is limited to a specified amount ($1,000 or $5,000) unless specifically increased by the unit owner. The owner’s need to increase Coverage “A” is a function of the coverage required to be provided by continued on page 54 www.insurancejournal.com

SPOTLIGHT

Habitational/Dwelling continued from page 52 er may be required to develop the necessary the association based on the level of associaciational bylaws increase an association’s value (it is not recommended that market tional responsibility. standard of care. Associations subject to value ever be used as the insurance value). Both Coverage “A” and Coverage “C” apply this insurance settlement mandate are Broad Form Named Perils coverage forced to closely monitor building and unless endorsed to cover “Special” causes Establishing associational and unit unit values (including value increases of loss. Expansion to “open perils” covcreated solely by a unit owner) to avoid owner property values requires erage can be accomplished by attaching inadequate insurance and a possible knowing who is responsible for HO 17 31 to Coverage “C” and the HO 17 coinsurance penalty that could arise insuring which property and which because they (the association) are 32 to Coverage “A.” Coverage “C” can be transformed from valuation method is being applied. insuring all real property regardless actual cash value to replacement cost of location or who installed it. Cost The accuracy of these calculations varies with the attachment of the HO 04 90 – estimators work well in these associations based on the level of associational responsiPersonal Property Replacement Cost Loss provided the association and the agent bility. Settlement endorsement. are aware of any individual unit owner Original Specifications: Developing upgrades. relevant values may be easiest when single Developing Property Insurance Values Bare Walls: Conflict arises if the unit entity requirements apply as the valuation owner does not have coverage, or enough Establishing associational and unit owner program and original specification requirecoverage, to rebuild what is defined as the property values requires knowing who is ments overlap in their result and mandate. “unit.” The association is only responsible responsible for insuring which property Property valuation programs calculate for the common elements and limited comand which valuation method (AVC, RC, or the cost of rebuilding the structure utilizing mon elements. To arrive at the insurance market value) is being applied. modern materials of like kind and quality; value, a cost estimator has to be completed Cost estimators are effective tools for original specification insurance requireand the value of each “unit” must somehow developing accurate values in most replacements limit associational responsibility to be subtracted out of the calculation. ment cost and actual cash value settlement the cost of replacing original construction Two questions arise regarding the value scenarios, as are discussions with knowlmaterials with modern materials of like of property in a bare walls association: edgeable builders in the area. kind and quality. • Who deciphers the definition of a “unit” If market value is the method of valua All-In: All inclusive statutes and assoallowing the unit owner, the assocition, a market analysis by a licensed appraisation and the respective insurance carriers to know who is responsible for insuring what property? ® • Who calculates the ultimate amount of coverage needed? There is no available method to produce a verifiably “unit” SALES & MARKETING IDEAS FOR P&C PROFESSIONALS property value. Attorneys, appraisers, agents and other professionals may be required to answer these questions and design the correct programs (one for the association and a separatNew Idea-Packed Book by Alan Shulman, CPCU ed program for each unit owner). A lot of professional expertise is required 500 Sales Ideas for Commercial Lines Producers up front to avoid future disputes and the features tons of traditional and social media-based valuation answer is still just a little better approaches for prospecting and selling to smallthan a guess. to-medium sized businesses • Only $59

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Boggs is the vice president for education for Insurance Journal’s Academy of Insurance. Since joining the insurance industry in 1990, Boggs has authored more than 300 insurance and risk management-related articles including six e-books. Email: cboggs@ ijacademy.com. Website: www.ijacademy.com.

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Workers’ Comp Small and Large Business Market Detail: ICW Group (www.icwgroup.com) is a full-service group of insurance companies offering workers’ compensation. There is a broad underwriting appetite for workers’ comp, and risk selection is based on individual risk characteristics versus class. Writes both large and small business, and delivers insurance products through independent agent and broker partners. All policies come equipped with industry-leading claims, risk management and fraud investigation services. For more than 40 years, the company have partnered with agents and policyholders to achieve fewer and less-costly claims, and lower ex-mods. Available limits: As needed Carrier: ICW Group Insurance Cos. States: Calif., Fla., Ga., Ill., Ind., N.C., Nev., N.J., Pa., S.C., Texas, and Wis. Contact: Taunya Moen at 800-877-1111 or email: enterprisemarketingteam@icwgroup. com

Professional Athletes (AD&D) Market Detail: Petersen International Underwriters (www.piu.org) will consider most occupations including artists, ships’ captains, pilots, offshore oil workers, fishermen, stunt people, actors, professional athletes, writers, and loggers to name a few. Professional athletes disability insurance is designed to guarantee the benefits of the athlete’s contract, current income, or protection for young players before being drafted into the professional leagues. Many sports do not guarantee the benefits to the player for longer than the current contract year. If the player is injured and is not able to make OAK001.indd 1

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the cut during the pre-season, the contract may be waived. Petersen International Underwriters offers benefits that are structured based on the players’ contract or income and the type of sport. Available limits: As needed Carrier: Unable to disclose States: All states except D.C. Contact: Customer service at 800-345-8816

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OIC RUN-OFF LIMITED (formerly Ralli Brothers Insurance Company Limited and The Orion Insurance Company plc) - and THE LONDON AND OVERSEAS INSURANCE COMPANY LIMITED (formerly Hull Underwriters’ Association Limited and The London and Overseas Insurance Company plc)

(both subject to a scheme of arrangement) - and IN THE MATTER OF THE COMPANIES ACT 2006 PROPOSED AMENDING SCHEME OF ARRANGEMENT

NOTICE IS HEREBY GIVEN that, by an order dated 8 October 2014 made in the above matters, the High Court of Justice of England and Wales (the “Court”) has directed that meetings (the “Amending Scheme Meetings”) be convened of the Scheme Creditors (as defined in the Original Scheme referred to below) of the above companies (the “Companies”) at 10.30am (English time), on 11 December 2014 at PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH, United Kingdom for the purpose of considering and, if thought fit, approving (with or without modification) the amending scheme of arrangement proposed to be made between the Companies and their respective Scheme Creditors pursuant to Part 26 of the Companies Act 2006 (the “Amending Scheme”), amending certain terms and provisions of the scheme of arrangement dated 20 November 1996 which became effective on 7 March 1997 between the Companies and their Scheme Creditors (the “Original Scheme”). The Court has ordered that each Company should convene three meetings of Scheme Creditors to vote on their respective Amending Scheme as follows: (a) for Scheme Creditors who are Policyholders (other than Qualifying ILU Policyholders) with IBNR Liabilities and Notified Outstanding Liabilities; (b) for Scheme Creditors who are Policyholders (other than Qualifying ILU Policyholders) with Scheme Liabilities (other than IBNR Liabilities and Notified Outstanding Liabilities), Dual Scheme Creditors and Ordinary Creditors; and (c) for Scheme Creditors who are Qualifying ILU Policyholders, (the terms “Policyholders”, “Qualifying ILU Policyholders”, “IBNR Liabilities”, “Notified Outstanding Liabilities”, “Scheme Liabilities”, “Dual Scheme Creditors”, “Pre-1969 L&O Policyholders”, “Ordinary Creditors” each being as more particularly described in the Amending Explanatory Statement referred to below). Depending on the type of its claim(s), a Scheme Creditor may be entitled to attend and vote at more than one of the Amending Scheme Meetings. All Scheme Creditors are requested to attend the relevant Amending Scheme Meeting(s) at such time and place either in person or by proxy. Each Scheme Creditor will be required to register its attendance at the Amending Scheme Meetings. Registration will commence at 9.30am and Scheme Creditors are requested to arrive no later than 10.00am in order to register. The Chairman of the Amending Scheme Meetings will address Scheme Creditors generally on the Amending Scheme and on issues relevant to voting on the Amending Scheme at the commencement of the Amending Scheme Meetings. Scheme Creditors may attend and vote in person (or, if a corporation, by a duly authorised representative) at the relevant Amending Scheme Meeting(s). Alternatively they may appoint another person, whether a Scheme Creditor or not, as their proxy to attend and vote in their place. Copies of the proposed Amending Scheme, the explanatory statement required to be provided pursuant to section 897 of the Companies Act 2006 (the “Amending Explanatory Statement”) and the voting and proxy forms for use at the Amending Scheme Meetings (each a “Voting Form” and together, the “Voting Forms”) can be downloaded from www.oicrunoffltd.com. Alternatively, hard copies can be obtained, free of charge, by sending a request to the run-off manager of the Companies, Armour Risk Management Limited (”Armour”) marked for the attention of Andrew Jones. Armour’s contact details are as follows: By post: Armour Risk Management Limited, 4th Floor, 20 Old Broad Street, London, EC2N 1DP United Kingdom By email: Oicclosurehelpdesk@armourrisk.com By fax: +44 (0) 20 7382 2001 By phone: +44 (0) 20 7382 2020 Scheme Creditors are requested to return their completed and signed Voting Forms to Armour by post, email or fax at the above contact details by noon (English time) on 10 December 2014. Alternatively Scheme Creditors may hand their respective Voting Forms in at the registration desk prior to the Amending Scheme Meetings if attending in person or by proxy. However Scheme Creditors are urged to return the completed Voting Forms in advance of the Amending Scheme Meetings. Any Voting Form sent by fax or by email will not be accepted unless legible and the signed original Voting Form is subsequently received by Armour (marked for the attention of Andrew Jones) no later than 7 days after the Amending Scheme Meetings. By the said order, the Court has appointed Dan Schwarzmann or, failing him, Paul Evans or such other independent person as the Scheme Administrators of the Companies may nominate, to act as Chairman of the Amending Scheme Meetings and has directed the Chairman to report the results of the Amending Scheme Meetings to the Court. Any Scheme Creditor who is unclear about or has any question concerning the action it is required to take in order to vote on the Amending Scheme or who would like to discuss the way in which its claims data is likely to be evaluated under the Amending Scheme process, should contact Armour using the contact details set out above. If approved by the requisite majorities of Scheme Creditors, the Amending Scheme will be subject to the subsequent approval of the Court. Dated: 8 October 2014 Hogan Lovells International LLP, Atlantic House, 50 Holborn Viaduct, London, EC1A 2FG United Kingdom Tel: +44 (0) 20 7296 2000 Fax: +44 (0) 20 7296 2001 www.hoganlovells.com Ref: Joe Bannister/Will Beck Solicitors to the Scheme Administrators

November 3, 2014 INSURANCE JOURNAL-NATIONAL | 57

IDEA EXCHANGE

Closing Quote mention of increased patient compliance with treatment or patient convenience. The message revolves around increasing profits for the dispensing physician. In other words, it’s all about the money. There are some great studies from the Workers’ Compensation Research Institute, California Workers’ Compensation Institute, and Accident Fund Holdings that demonstrate that physician dispensing increases the quantity of drugs dispensed, produces longer periods of disability, poor patient outcomes and significantly increases claim costs. However, I have seen nothing credible to support the argument for physician dispensing. The patient convenience argument is a complete sham. How many pharmacies are within five miles of your home? Nationwide, Walgreens has more than 8,200 drug stores, CVS has more than 7,000. Most major grocery chains have pharmacies, as do most Wal-Mart, Target and Costco stores. If you live in an isolated place that is not surrounded by pharmacies, there are multiple companies that specialize in mailing prescriptions directly to your door.

It’s Time to End Physician Dispensing in Workers’ Comp

here has been an ongoing debate around the merits of physician dispensing in workers’ compensation. Those in favor of allowing this indicate it increases patient compliance with treatment recommendations and is more convenient for the patient. Those opposed point to significantly higher costs with physician-dispensed drugs. By Mark Walls

It’s All About Money Recently, a physician forwarded me a marketing email he received from a company that specializes in helping physicians implement pharmacy dispensing and toxicology screening in their office. Some highlights included: • “We guarantee the most profitable programs! Make sure your dispensing and toxicology programs are as profitable as possible. If you are not dispensing or tox testing your patients, it is time to start. If you answer ‘No’ or ‘I don’t know’ to any of the following questions, give us a call. We will provide a free consultation and, if we can’t make your program more profitable, we will tell you! • Are you dispensing the most profitable medications for each clinical indication? • Are you capturing all possible dispensing and tox testing opportunities?” What’s missing from this marketing email? There is no

58 | INSURANCE JOURNAL-NATIONAL November 3, 2014

The Reason Costs Remain High The issue of physician dispensing illustrates the reason workers’ compensation medical costs are significantly higher than the same diagnosis on the group health side. In group health and Medicare, the policy dictates what is covered. Physician ‘The time has come to end dispensed medphysician dispensing in ications are not allowed. It’s that workers’ compensation.’ simple. Unfortunately, under workers’ compensation, it seems that anything not specifically prohibited by the statutes and regulations ends up finding its way into the system. There is a small group of medical providers who look to exploit loopholes in the workers’ comp system for profit. The injured worker is a commodity used for financial gain. Because the workers’ comp system is susceptible to medical providers with less-honorable intentions, regulators must implement controls to prevent such abuses. Sometimes controls are complex, such as the evidence-based treatment guidelines adopted in several states. For physician dispensing, the solution is simple. Just say no. There is overwhelming evidence to support that physician dispensing increases costs, lengthens disability, and produces poor outcomes for injured workers. It’s time to end physician dispensing in workers’ compensation. Walls is vice president of communications and strategic analysis at Safety National and founder of the Work Comp Analysis Group. Phone: 314-692-9515. Email: mark.walls@safetynational.com.

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Expect big things in workersâ&#x20AC;&#x2122; compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide. For information call (877) 234-4450 or visit auw.com/us. ÂŠ2014 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best. Insurance plans protected U.S. Patent No. 7,908,157.